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Monday, November 13, 2006

Consumer Reports Campaigns Against Extended Warranties

Consumer Reports today unveiled its first-ever public education campaign urging shoppers against buying an extended warranty. This holiday season, consumers are expected to spend a whopping $1.6 billion on extended warranties for laptops, flat-screen TVs, and other electronics, and appliances. And Consumer Reports says that almost all of it will be money down the drain.

Consumer Reports' public education campaign kicks off on Tuesday, Nov. 14 with a full-page advertisement in USA Today advising consumers that extended warranties have become big business for retailers -- and a waste of money for consumers. At the same time, Consumer Reports will launch an email campaign to 825,000 if its subscribers and e-activists, and a hub on that will invite consumers to share their experiences.

"This campaign may be a first for Consumer Reports, but its goal of educating the public goes back to our very first days of publication," says Jim Guest, president and CEO of Consumers Union, nonprofit publisher of Consumer Reports. "When we started in 1936, advertising first flooded the market and consumers needed an independent, and ad-free source of information."

A Boon For Retailers; Research Shows a Waste for Consumers

In a time of razor-thin margins, extended warranties have been a boon for retailers. extended warranties can reap a 50 percent margin or higher, which is often well more than the profit on the product being sold.

Years of survey data from Consumer Reports data shows that extended warranties are a notoriously bad deal for consumers. The Consumer Reports National Research Center tracks the ownership experiences of millions of consumers and thousands of products.

Annual surveys ask Consumer Reports subscribers if they own certain products and whether they've needed major repairs. By analyzing that data Consumer Reports has learned which brands have been more repair-prone than others.

Consumer Reports survey findings show that products seldom break within the extended warranty window -- typically three years -- and that when electronics and appliances do break, the repair often costs about the same as the cost of the warranty.

"Based on our extensive testing and research, Consumer Reports has long advised against extended warranties," says Kim Kleman, deputy editorial director, Consumer Reports. "A better idea is to buy a reliable brand."

Two Possible Exceptions and Peace of Mind

Consumer Reports notes that there are two possible exceptions when it comes to extended warranties: rear-projection microdisplay TVs, which Consumer Reports notes are expensive to repair and are three times more likely to need repairs that other types of TVs; and Apple computers, because they come with only 90 days of tech support and the additional warranty extends that.

For consumers who want absolute peace of mind and don't mind paying for an extended warranty that they'll probably never need, Consumer Reports offers the following advice:

* Check your credit card -- Plans, often found on gold and platinum cards, typically lengthen the original manufacturer's warranty by as much as one year.
* Shop around -- Extended Warranties vary in length and term. Consumer Reports advises that shoppers shouldn't pay more than 20 percent of the purchase price for the Extended Warranty and should negotiate the price and terms.
* Beware of hidden "gotchas" -- For heavy items such as large TVs or major appliances consumers should ask if in-home repair or pickup is included. For TVs, who reinstalls it? And if the product will be repaired, is there a lemon clause such that after a few repairs the product is replaced?


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