Why luxury car brands still fall short when it comes to warranty

Luxury car buyers typically drive out of the dealership with a shorter, inferior factory warranty to cars costing a fraction of the price – and it's unlikely to change soon.

The warranty chasm between Toyotas/Hyundais/Mazdas and Mercedes-Benzes/Audis/BMWs has never been starker, with all the top 10 selling mainstream brands now offering factory warranty protection of at least five years (Kia steps that up to seven).

In contrast, most luxury brands cap their official standard warranty protection at three years, well behind the new industry standard – and the expectations of the Australian Competition and Consumer Commission.

In the luxury space only Lexus, Infiniti, Rolls-Royce and Tesla offer longer standard warranties, but each tops out at four years, still below that of mainstream brands.

Staying put

The bad news is Mercedes-Benz, BMW, Lexus, Audi, Jaguar and Land Rover all plan to stick with their existing warranties.

With Lexus and Audi it means their customers have less official warranty protection than buyers of the mainstream brands that own them (Toyota and Volkswagen respectively). Even relative unknown Indian brand Tata provides a four-year warranty, bettering the Jaguar and Land Rover brands it owns.

Lexus argues it has "industry-leading quality of both its vehicles and customer care".

Lexus Australia PR manager Nick Raman says Lexus consults its customers and "they tell us they want Lexus to look after them as a customer, which is a much broader expectation than the warranty that is already among the best in the luxury sector."

Wait and watch…

Similarly, an Audi spokesman said: "we're monitoring the market", pointing to optional service plans that were recently revamped to five years. "That was a result of the customer feedback."

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A spokesman for Jaguar and Land Rover said the three-year warranty (five for the all-electric Jaguar I-Pace) "remains competitive" and "we have no plans to change".

BMW Australia CEO Vikram Pawah says he will only consider improving the warranty "when my customer starts telling me that they're not happy with the durability of my product".

"Whether it's three years or five years it doesn't matter, as long as the product is durable, that's what the customer is asking for."

More of the same

Mercedes-Benz says it has discussed extending its existing warranty but has no immediate plans to make changes.

"Our priority is to offer competitive service packages that reduce the customer's cost of ownership," said head of media relations Jerry Stamoulis.

In the past, the propensity for a manufacturer to assist an owner after the expiration of the warranty sometimes came down to whether the vehicle had been serviced within the official dealer network.

In recent years, the ACCC has put the automotive industry on notice, fining Ford $10 million for "engaging in unconscionable conduct in the way it dealt with customer complaints" and obtaining commitments from Holden, Hyundai and Volkswagen to improve how they deal with faults.

Luxury brands were watching closely. You can bet some conducted audits to ensure they were appropriately looking after customers, which anecdotally appears to have resulted in improved assistance once the official warranty has expired.

Money spinner

One issue for luxury brands is the potential loss of revenue. Luxury brands offer extended warranties – typically costing thousands of dollars – that add to the bottom line and helping dealer profitability.

Despite claims of superiority durability and quality, it may cost $4000 or more to extend a warranty to the five-year coverage of mainstream brands.

While there's every chance Australian Consumer Law will cover many faults for five years or more, some owners don't want the hassle or to be left wondering, instead happy to pay for peace of mind.

How long is a piece of string?

That's understandable considering there is potential wriggle room in how long various failures should be covered.

The ACCC – which oversees Consumer Law – simply says warranty coverage should extend for a "reasonable time" and what is covered will depend on whether it is a major or minor failure (the organisation has examples on its website.)

"The ACL's consumer guarantee provisions apply for an unspecified but 'reasonable time'," an ACCC spokesperson said in a statement. "What constitutes a 'reasonable time' in relation to a particular vehicle will be determined by a range of factors, including the nature and cost of that vehicle."

Considering luxury cars have a price premium, that could mean they are entitled to longer consumer guarantee protection than, say, a $20K hatchback.

In other words, the ACL protection will almost certainly extend beyond the three-year warranty and, possibly, beyond the five-year coverage being offered by mainstream brands.

That potentially makes those expensive extended warranties redundant.

Not so simple

There are other considerations. When car makers set a warranty they put money aside when the car is sold to cover potential issues later on.

Extending a warranty means manufacturers take an immediate hit to their bottom line, having to quarantine more of the purchase price for use later. The older a car, the more likely things are to go wrong, so it's feasible warranty protection for years four and five could cost more than the first three years.

Offering longer warranties could also put pressure on other markets. In Europe, for example, Audi and Mercedes-Benz offer only two-year warranty protection, charging extra for those who want longer protection.

Plus, the luxury market has dropped more than 10 percent in recent years, putting pressure on revenues.

"The ultra-competitiveness of the market and the slowdown in the market … means the pressure on revenue is very real," said one industry pundit.

Standing out

One brand that is bucking the trend of relatively short warranties on luxury cars is Genesis, the new luxury brand from Hyundai.

The newcomer is stepping things up with a five-year, unlimited kilometre warranty that incorporates five years and 75,000km of free servicing.

It's part of the pitch to tempt typically loyal luxury car buyers to at least consider the fledgling player.

Volvo also says a longer warranty "is being considered", potentially extending the current three-year coverage.

And Nissan-owned Infiniti is on a watching brief, hinting it may lengthen its current four-year warranty.

"While we have no current plans to change our warranty, we will continue to monitor the market to ensure we understand and deliver on the needs of our existing and prospective customers," a spokesman told ES.

'On notice'

We'll leave the final words to the ACCC, which has been vocal on pushing dealers and manufacturers to improve how they deal with faults.

The ACCC says that protection often extends well beyond the warranty time frame.

"The motor vehicle industry is on notice, from manufacturers to dealers, that consumers must be provided their rights under the ACL, in addition to any warranty rights."