Many pieces of construction equipment come with an extended warranty at an extra cost. These warranties are beneficial because they provide peace of mind and boost customer satisfaction throughout ownership. But are they really worth the extra cost?
Most construction managers decide whether or not to buy an extended warranty when purchasing a piece of equipment. Before making a decision, you must understand the basics of warranties.
Contrary to popular belief, the original equipment manufacturer (OEM) is responsible for the basic warranty. The dealer simply manages the warranty on behalf of the OEM. For the most part, the machine maintains the warranty for the typical duration of 12 months after delivery. Some OEMs limit the warranty to one hour, while others offer an unlimited warranty. If the machine moves throughout the 12 months, the warranty typically follows from the selling OEM dealer to the nearest authorized OEM dealer.
The terms of an extended warranty are more stringent. To start with, it usually has a time and meter hour restriction. The warranty could be a full bumper-to-bumper warranty, an engine-only warranty, a powertrain warranty, or a powertrain plus hydraulics guarantee.
Most dealers sell extended warranties backed by the OEM, while some choose to sell extended warranties backed by third-party providers. Select OEMs will not offer extended warranties on old machines or machines from a rental fleet. Since extended warranties come with additional risks, they are always more expensive than standard warranties.
The manufacturer gets to determine the type of warranty offered with the equipment. So, before you sign anything, familiarize yourself with the three types of warranties:
The standard warranty provides the most basic guarantee. These include equipment protection but typically exclude routine maintenance (ie. oil changes, filter inspections). While some standard warranties cover transportation to and from the maintenance facility, others do not. If this is a must-have feature for you, choose someone who will pay for it.
The extended option is more expensive because it includes an additional warranty for certain equipment pieces. For example, you might want your manufacturer to cover your powertrain and hydraulic. In that situation, you should go for an extended warranty that specifically addresses your needs. However, the biggest drawback is that you must specify exactly what you want to be covered in the contract.
There are also specialized warranties that cover certain pieces of machinery rather than the complete machine. If you choose a parts warranty, you will receive a free original equipment manufacturer's (OEM) part. For example, a powertrain warranty will not cover the equipment frame, and you will be responsible for any necessary repairs.
Does someone in your company usually fix your equipment? You may have a backup, spare equipment, or a shop where you can repair the equipment. Many types of companies, including mining and aggregate, are typically more self-sufficient and may perform their own repairs whereas general contractors and municipalities rely on external help.
What is your shop’s capability? New equipment is highly technical to many general contractors, so they may not be able to repair newer models. For example, they might decide to work on their machines made before 2007 but outsource repairs on those made after 2007. Extended warranties make more sense if you're going to outsource the repairs.
How do you feel about emission control systems? You are probably purchasing more complex power trains, whether you are purchasing Tier 4-Interim or -Final engines. New technologies include diesel particle filters, exhaust gas recirculation, and selective catalytic reduction (with different diesel exhaust fluids). After the five-year/3,000-hour warranty has expired, who do you want to cover these systems?
How do you deal with crucial equipment downtime? Downtime on large plant wheel loaders or asphalt paving machines can create significant delays. Negotiating an extended warranty on these machines with a loaner provision (for example, after 48 hours of downtime) is one strategy to reduce downtime.
Have you done any research on the expenses of extended warranties? Each OEM or third-party insurer has its pricing model. You may find their extended warranty pricing acceptable up to a certain point, but beyond that, it may get too pricey. Compare their prices to the current running expenditures of your applications and preventative maintenance program.
Building sites are volatile environments where a little peace of mind can go a long way. When you operate in a field that relies on the productivity and dependability of heavy machinery, it's vital to make sure you're insured in case you need service or repairs. If you are debating about purchasing an extended warranty for your construction equipment, consider the following three reasons:
Extended warranties for construction equipment lower expenses.
You own a piece of equipment once you sign your name on the dotted line and walk away from the lot. However, if a warranty covers the equipment, you'll be covered if it doesn't work as planned or needs to be repaired. Repair expenditures for heavy equipment can put a strain on your budget and have a long-term negative impact on your bottom line if you don't have coverage when a central component like the engine, gearbox, or hydraulic system breaks down.
If there are any mechanical problems, you will know your coverage ahead of time so you can prevent unexpected costs. Warranties provide you with a sense of security and peace of mind while simultaneously reducing your repair expenses.
For example, hydraulic pump repairs can cost more than $6,000 + labor out-of-pocket. An unexpected failure without warranty coverage could deplete your company's cash reserves dramatically, whereas an extended warranty might cover the cost of the repairs.
Warranties may enhance the resale value of your construction equipment.
Equipment that has been well-maintained and covered by a warranty for the duration of its service life has a higher overall resale value. It's a sure sign that the equipment was thoroughly serviced and that factory-trained specialists dealt with any concerns. When putting equipment up for sale on the used market, transferable coverage is an appealing selling factor.
Transferable warranties are available from some manufacturers. When you buy a machine with a transferable warranty, the warranty coverage passes to the new owner if you sell it during the warranty period. As a result, the market value of your machine increases.
OEM warranty payout limitations are uncommon.
If you are tempted to buy an extended warranty from a third-party company rather than from the equipment's manufacturer, check to see if the third-party offering has a payout cap before proceeding. If there is a payout cap, the third-party warranty company will depreciate your machine’s value and cap the amount they will pay for repairs at the depreciated value. You would have to pay for some repairs out of your cash reserves rather than relying on the warranty to cover it. However, payout caps are uncommon with OEM warranties for construction equipment.
Your equipment will be back up and running quickly when something goes wrong.
When critical heavy equipment breaks down, productivity on the job site suffers. A warranty allows you to return to work faster and save money; by reducing downtime, you won't have to worry about allocating funds to pay for repairs because you'll go right to the dealer for the quick servicing and assistance you need. Heavy equipment coverage may include the expense of replacement equipment while yours is out of action in some instances.
You will receive high-quality parts and services.
Warranty repair on brand-name heavy equipment is performed by highly competent mechanics trained to operate on these specific machines at approved local dealerships. Repairs are completed the first time, correctly, without the need to wait for long periods for availability, slow turnaround times, or wrong diagnosis.
The best way to maximize your warranty is by caring for and maintaining your equipment. Generally, if you haven't tampered with the equipment and have used and serviced it correctly, your agreement should include a condition stating that the dealer would cover the cost of equipment repair.
Your dealer may deny your claim and force you to pay for the repair yourself if you misuse the equipment. You should only use the equipment for its intended purpose. Misuse promotes premature failure and accelerates wear and tear, so five-month-old equipment can perform as if it were a year old. Unfortunately, the dealer has every right to refuse you if they can prove that you've misused the equipment. Ensure that you are properly using and caring for your equipment to make the most out of your extended warranty.
Heavy equipment extended warranties are great options for some, but not for others. You must consider your equipment needs when deciding whether or not to purchase a warranty. If you decide to purchase one, manufacturers offer three different warranties to fit every need. Warranties provide some business owners with peace of mind because they reduce expenses, enhance the resale value of your equipment, minimize downtime, and guarantee quality repairs. At the end of the day, you know what is best for your equipment.
While you make these decisions, Equify Financial is here to help. Our experienced finance team can assist you by providing the necessary funding to purchase heavy equipment. Reach out today!