Customer-direct "is a growing business, to say the least," said, Marc Kamin, a spokesman for AA Auto Protection, of West Deptford, N.J., which markets extended service contracts online. "Our position is a lot of people didn't know that a service like ours is available."
Saturation-coverage TV advertising for US Fidelis, including a NASCAR sponsorship, fixed that problem by raising awareness, Kamin said.
AA Auto Protection is a broker for the administrators that actually sell extended service contracts, Kamin said. He compared AA Auto Protection to an independent insurance agent who offers policies from several companies.
"We're able to give the best prices directly because dealerships mark them up. We can sell them more cheaply," Kamin said.
He estimated that the average consumer could save 40 to 60 percent off the price of an identical service contract bought through a dealership, depending on how much the dealership marks it up. Kamin quoted a price of about $1,800 for "bumper-to-bumper" coverage for a couple of common used vehicles, a 2005 Toyota Camry or a 2005 Ford F-150 pickup.
Kamin said a broker such as AA Auto Protection also can offer service contracts for older used cars with higher mileage -- contracts that dealerships likely would not offer.
Apples to applesLarry Dorfman, CEO of EasyCare -- the trade name for Automobile Protection Corp., of Norcross, Ga. -- said in a separate interview that comparing apples to apples, consumer-direct marketers are not necessarily cheaper.
"Most of these companies claim they are a lot cheaper than a dealer, and the fact is, if you price them for similar coverage, … they are more," he said. Dorfman was commenting in general, not specifically about AA Auto Protection.
EasyCare primarily offers service contracts through dealerships, but it also offers them directly to consumers through a call center, Dorfman said. He said his company first refers all customer-direct consumers to a dealer in EasyCare's network.
Dorfman said retail prices at dealerships, which are set by dealers, range from $1,500 to $1,800 for his company's best coverage, called TotalCare, for an average domestic or Asian vehicle. Contracts have a $100 deductible.Even EasyCare's own internal customer-direct call center would charge an average of $300 more for the same thing, he said. He estimated that competing call centers would charge about the same, maybe $100 more.
Dorfman said dealers and call-center service contract brokers both pay the same wholesale costs for service contracts. That means call centers are middlemen, just like dealerships.
He said a dealership has other profit centers, such as parts and service, which make money in the long run from a service contract customer. But a call center has to charge more because it makes all its profit from service contracts.
"Over the years, a customer who purchases a [vehicle service contract] at the dealership has always been more likely to service there," Dorfman said.
Buyer (and seller) bewareDorfman said the US Fidelis bankruptcy should serve as a warning for all service contract providers. No matter what the contractual obligations are, dissatisfied customers understandably blame whoever sold them the contract, Dorfman said.
"If the customer purchases from a dealer, there is brick and mortar to go back to," he said. "Claims and cancellations are a lot easier, and if a dealer is no longer in business, the typical [vehicle service contracts] offered now at dealerships will step up and do what is right."On its Web site, US Fidelis, of Wentzville, Mo., tells customers seeking a refund that the service contract is between the customer and the third-party administrator, not Fidelis.
"US Fidelis has agreements with each of these administrators, and some of those agreements state that when a customer cancels, US Fidelis will reimburse the administrator for part of the amount refunded to the customer," the company says.
However, bankruptcy means US Fidelis may be unable to pay its part of such refunds, the company says.Without commenting on a particular company, Dave Robertson, executive director of the Association of Finance & Insurance Professionals, said extended service contracts sold through dealerships can offer some advantages.
As a general proposition, a cheaper service contract may make it harder to make a claim that qualifies for coverage, Robertson said.
He also said that buying an extended service contract on the Internet with a credit card could be more expensive than it appears, if the buyer doesn't pay it off right away.
"The cost of the coverage plus the cost of credit likely makes the plan more expensive than one purchased in a dealership," Robertson said. "If I was an F&I manager, I'd put some hard numbers to this and use it when pitching [vehicles service contracts] in the store."