Why Dealers Should Offer Construction Equipment Warranty

It seems appropriate to speak about this subject given that it is a decision that needs to be made today when a piece of equipment is sold.  First, an extended warranty, often referred to as an extended service contract, is basically a policy designed to protect the equipment buyer from the cost of repairs after the OEM Standard Warranty has expired. 

What Types of Construction Equipment Warranties are available?

As of today, there are two (2) types of extended warranty for construction equipment available. The first type of extended warranty is offered by the heavy equipment manufacturer (OEM). Typically, they extend the standard OEM warranty for a chosen length of time (usually in months or years) and choice in hours (1000, 3000, 5000). The extended OEM warranty allows the equipment buyer to take their equipment to an OEM’s dealership for service, parts and repair once the standard warranty has expired (this is usually the dealer which sold the piece of equipment though may vary depending on where the equipment is at the time of the failure). Depending on the size of the heavy equipment manufacturer, they may take the risk themselves or pass the risk off to an insurance company.

The second type of extended warranty is offered through construction equipment dealerships, properly referred to as an extended service contract, as opposed to an OEM program. Typically, these dealerships will have an insurer working behind the scenes with them. Like the OEM extended options, there are choices of length of time and hours. Where a dealership may differ is that they may offer a little more flexibility for the dealership. Like the OEM, they can turn their parts and service repair work on units sold into a fixed expense however,  a dealership will set its program up to be reimbursed from the policy on what their parts and labor rates are, as opposed to being reimbursed dealer net for parts or based on OEM determined SRT’s (if they are even established at all). 

What are the benefits of having a Construction Equipment Extended Warranty Program?

Truth be blunt, an extended warranty is a safeguard for construction equipment against unexpected repairs. It assists in providing equipment distributors assurance to its equipment buyers that repair costs will be covered without undue financial stress (in addition to some of the benefits mentioned above under Dealer Programs). In addition, it is a powerful marketing tool which can be used by dealerships as well as OEM’s to provide confidence in the brand(s) they represent. By providing your equipment buyers the option to have peace of mind vs. worrisome and costly downtime.

Be sure to READ the fine print

Extended service contract coverage can be long. It is important that you understand the various coverage. Its easy to skim over the covering document with these programs. A solid understanding by you and the service department is key when offering these to the end-user. Its been seen in some instances where dealers will have their customers initial the pages to acknowledge that they have gone over a contract and understand completely what is offered with the program. In the end, it will save a lot of fighting and headache. 

Do you need to offer a construction equipment warranty?

In short, No, but your competitors probably are and will which may make all the difference in the world when it comes to making that sale of a $250,000 excavator. Also consider the fact if you choose to not offer an extended service contract at the time of sale there are important factors you might not take into consideration, for example:

• When a failure occurs, its always the dealers problem (NOT the customers). Unfortunately, this has become too much of a common theme in the equipment business today. Things to consider:
  
  • Your customer will think that the machine is covered and you have to go negotiate with the manufacturer to pay for the bill
    • More often than not you are stuck with 1/3 of the bill the customer is stuck with a third and the manufacturer will cover a third, this is best case scenario. Are you really better off when claim #2 or #3 hits???
  • Perception of your service level as a dealership suffers due to a negative perception from the customer that the cost of fixing their equipment should have been covered
  • Potential loss in future business because of this otherwise avoidable situation

Granted, this may not occur ever at your dealership. But remember all it takes is once and that all important Loyal Customer is moving their business to your competition.