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June 30, 2003

UK: Office of Fair Trading launches new car warranty probe

The UK government’s consumer watchdog, the Office of Fair Trading, on Monday launched a study into warranties for new cars, focusing on how competition in car servicing is affected by restrictions on where cars may be serviced during the warranty term. The OFT said the value of servicing linked to warranties could be in excess of £1 billion a year. In addition to the manufacturer's warranty (usually one or two years), new cars are often sold with a dealer extended warranty that increases the warranty to three years.

By bcusack

The UK government’s consumer watchdog, the Office of Fair Trading , on Monday launched a study into warranties for new cars, focusing on how competition in car servicing is affected by restrictions on where cars may be serviced during the warranty term.

The Oft said the value of servicing linked to warranties could be in excess of £1 billion a year. In addition to the manufacturer’s warranty (usually one or two years), new cars are often sold with a dealer extended warranty that increases the warranty to three years.

Dealer extended warranties are normally valid only if the car is serviced by garages within the manufacturer’s network. While manufacturers’ warranties do not usually specify where a car must be serviced, in practice the extended warranty will normally be invalidated if the car is not serviced, from new, by an authorised repairer.

The aim of the Oft study is to examine:

– the extent to which garages outside the manufacturers’ networks are prevented from servicing new cars;

– whether competition from independent extended warranty providers is being eliminated; and

– the impact on customers of restrictions on where vehicles should be serviced.

The study will also examine questions about new car warranties such as:

– which car manufacturers and dealers offer them;

– what are their terms and conditions;

– to what extent are they taken up;

– who finances them and how;

– how they influence the choice of garage for servicing;

– the arguments for offering them with service restrictions; and

– the alternative options for consumers.

Oft chairman John Vickers said: “Our study will look at how the car servicing market is affected by the warranties offered with new cars, particularly when servicing is tied to a franchised network. It will examine the pros and cons for purchasers of new cars of these warranties.”

The study is expected to report later this year. Oft market studies can lead to a number of possible outcomes including a clean bill of health if the market is seen to be working effectively, a market investigation reference to The Competition Commission , further Oft investigation such as work under the Competition Act if this is justified, or a consumer awareness initiative.

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