Extended warranties - unravelling the service plans on new machinery

Extended warranties and service plans are widely offered on new tractors, but the range and complexity of products on offer can be bewildering. Suzie Horne summarises what's on offer

If you enjoy the sensation of being confused, the world of extended warranties and breakdown plans will be right up your street. There is a huge range of schemes out there to cover breakdown, service and repair of tractors.

These run from a true extended warranty, for breakdowns or faults which are attributable to the manufacturer, to long-term, full-scale service and repair plans. They give budgetable running costs and usually must be taken out at first purchase or within a short time limit from new.

The use of service and repair contracts has grown over the past 15 years or so, with the highest take up on larger tractors in arable areas.

What's included in a standard warranty?

Usually 12 months' cover against faulty materials or factory workmanship. But many tractors are being offered with a longer term as standard, either across whole ranges above a certain hp, or as a one-off promotion linked to individual models.

For example, all MF tractors above 160hp come with a five-year or 2400-hour warranty as standard. John Deere's standard warranty is 12 months from date of delivery and 24 months or 2000hrs on main engine components.

What is an extended warranty?

A true extended warranty simply prolongs the manufacturer's obligations under the standard warranty for a number of years.

Most mechanical breakdowns are covered, though wearing parts such as brakes and tyres are usually excluded.

But not everything that is covered in the first year is automatically covered in subsequent years. There may be an hours limit or fewer main components may be covered.

Some schemes reduce the proportion of the repair covered by the extended warranty on the basis that the user may already have had two or three years' use of the part.

Many buyers figure that, as most warranty faults are discovered within the first few hundred hours of work, extended warranties are not cost effective.

Indeed, as products develop, it becomes more difficult to distinguish between a true extended warranty and repair contracts.

Whether it's an extended warranty, repair or service plan, the products often share many features:

• Machines should almost always be serviced and repaired by franchised dealers.
• Stamped service records must be obtained and kept.
• Only approved spares such as fluids and filters can be used in routine maintenance.
• Some extended warranties carry an excess charge on certain repairs.
• There are usually obligations for the owner/user; for example, proper use or operation of the machine, not continuing to use the machine once a fault or problem has occurred and notifying the dealer/manufacturer immediately (or at least promptly).
• Hours may be limited or premiums go up in steps according to hours.
• Use may be restricted - for example, if a breakdown occurs while the tractor is being used for a non-agricultural operation, this may be excluded unless this use has been approved by the warranty scheme provider.
• Cut-off dates may apply as to when warranty extensions/service and repair contracts can be bought.

What is not covered?

Accidental damage, which would usually be covered by the farm's general insurance; negligence, such as not checking oil levels; damage caused by continuing to operate after initial damage is apparent; and any unauthorised modifications. Many schemes exclude tyres, brakes, glass, bulbs and paintwork.

Are repair plans and extended warranties worth the cost?

Farm businesses are constantly being told to reduce risk and these products offer a way to budget for repair costs, although often not for all repair costs.

"You can only get a real sense of the value of a contract if you understand what the likely repair costs of a tractor would be," says Richard Jackson, managing director of 7Y Services, Leominster, which runs a machinery ring including 40 seasonal hire tractors.

Farms need good historical machinery costings to assess what is being offered and compare that with the cost of repairing and maintaining the tractor on their own account.

There is also a software package, the Machinery Costs Analyser, which holds the repair and running costs of a wide range of tractors and other equipment. This is compiled by 7Y with business consultant Andersons for the ABC costing series and allows farmers to source likely repair and maintenance cost information for a large range of tractors. A free trial is available at www.abcbooks.co.uk/fmcbook.htm.

At least 15 things you need to ask yourself

Read and understand the terms, advises Trowbridge consultant Martyn Jones.

"It can be a minefield - it's back to the small print.

"If the machines are used by good, responsible operators, problems are less likely. It may be better to spend the cost of extra warranty on staff training for machinery operations or a bonus scheme aimed at minimising machinery costs."

Ask yourself the following, too:

• Is the cover for years two and three the same as in year one?
• Is the cost of hire included in the package if you need a replacement machine?
• Who is providing the cover? Is it manufacturer or insurer backed?
• Is the contract easy to understand?
• What is specifically included or excluded?
• What constitutes a covered repair? Does this change over the life of the plan?
• Is there an excess? Is it variable? This can reduce the cost of the cover.
• What is the experience of other customers?
• Do I have to pay the VAT element of the repair costs?
• Is the scheme backed by the manufacturer or by an insurance company? Who will I be dealing with in the event of the claim and what is their interest?
• Are payments up front or flexible?
• Does the scheme match hours to needs? There is no benefit in over-insuring.
• How good is the dealer service and support?
• For how long are repairs and spares guaranteed?
• Is the plan transferable if I sell the tractor?
• What are the terms for replacement machines? Are there guarantees if repairs are not fixed within a certain timescale?

What the big manufacturers offer:

John Deere

John Deere doesn't offer an extended warranty, but its PowerGard range has several levels of maintenance and repair plan and a new set of options will be announced soon.

The first level is PowerGard Maintenance - a dealer calculates normal routine maintenance costs (oil changes, etc) and sets up a contract with the customer to carry out all maintenance or just annual inspections. Customers can pay at each service or in advance for a set number of years.

* PowerGard Powertrain Repair covers all main components (engine, transmission, axles) and oil-immersed parts within them, does not require a mandatory maintenance plan (servicing must be carried out at prescribed intervals and use genuine John Deere filters and fluids) and is flexible as to when it can be taken out. There is no excess. Pricing varies by model and options. For example, PowerGard Powertrain Repair on a JD6430 tractor (120hp) for 5 years 2500hrs (minimum) would cost 77p/hr or £1925.

* PowerGard Full Repair covers everything except tyres and is otherwise the same as Powertrain Repair. PowerGard Full Repair for 5 years or 5000hrs on the same 6430 tractor (120hp) would cost £1.28/hr or £6400. Costs relate to the tractor price.

New Holland

As well as the standard 12-month warranty, NH is including two years of its Service Plus breakdown cover in the purchase price of its tractors. This is not a warranty extension, but covers the diagnostic and repair costs for engine, driveline, hydraulics and electrical breakdowns.

This can be extended for up to a further two years, with variable excesses and hours, but the decision to do this must be made within the first three months of the life of the tractor. Excesses ranges from £0-200, with £70 as the standard.

The cost of extending Service Plus to the fourth year for a T6080 and 4000 hours is £650 with an excess of £200, while an extra two years for the same tractor (6500-hour limit) is £1800.

A T7040 on the same basis would cost £816 for the fourth year or £2300 to take it through to five years. Servicing must be with an NH dealer, but routine maintenance such as oil and filters can be done on farm as long as approved products are used.

The plan can travel with the machine if it changes hands.

Claas

Claas tractors come with standard 12-month warranty from warranty registration or first day of use. A one or two-year extension can be bought through a contract with Claas UK, at the initial tractor purchase, to begin after the 12-month normal warranty expires.

Wear and tear, accidental damage, claims of less than £100, unauthorised specification changes, misuse and negligence are not covered, as with most extension contracts.

Cost depends on extension time and model, but varies from 0.3 to 0.6p/hp/hr (minimum125hp regardless of model/size). The contract requires full maintenance schedule by a Claas-qualified mechanic, using Claas diagnostics.

Claas Service Contracts called Maxi Care are also available, covering basic maintenance, running gear or full cover. These all cover the servicing costs on a fixed price basis per hour of use. The customer is responsible for daily maintenance, fair and reasonable use.

Agco

MF, Fendt, Valtra and Challenger tractors from Agco all have 12-month warranty as standard with extended warranty included from time to time as a promotion. Apart from promotions, Challenger Manager, Fendt Star Service and Massey Ferguson Manager are extended warranties for up to five years and a maximum of 6000 hours.

Agco extended warranties can be taken out at first registration, or up to six months or 400 hours after first registration, whichever is first. Cover is as the standard warranty and provided in house by Agco, costing from 33p/hr for a two-year, 4000hr warranty on a 70hp tractor up to about £1/hr for a 370hp tractor for five years.

Challenger extended warranties operate differently, being tied in with servicing and this can be organised for other Agco tractors.

All service repairs carried out by Agco dealers carry 12 months' parts and labour guarantee. Service plans can also be taken out for most tractors up to 10,000 hours and Premium Care Service Plans for Valtra tractors up to 10,000 hours will be launched at Cereals 2009.

Same Deutz-Fahr

The standard warranty is for 12 months up to 125hp and 24 months or 2000 hours above 125hp. No extended warranties are offered, but these can be bought as stand-alone plans.

Service and repair plans are available, tailored to use levels and customer needs.

Customers need to decide if they really need an extended warranty or a service plan, says Rob Edwards of SD-F. "Experience has shown that extended warranty gives the customer peace of mind, but more often than not a service plan will give him greater cover, as regular and planned maintenance will pick up worn or damaged components before they fail, with reduced downtimes and cost.

"Many customers will try to have repairs made to worn or damaged components done under warranty and this often compromises the dealer. Our warranty is unique in offering a full 24 months warranty, not a 12+12 scheme. The cover in the second year is the same as in the first, subject to service obligations being met."

Case IH

Tractors have a base warranty of 12 months, unlimited hours. A special offer includes two extra years on Puma CVX models.

Case IH offers Safegard extended cover, available on all tractors with variable years, hours and excess: Years are base plus two, three or four years, excess ranges from £0-250 and hours from 900 to 6,000. They are available when the unit is bought new or up to the first year and include all standard non-wearing items, including engines, transmissions and axles. Safegard costs from 1.5% to 10% of list price.

Extended cover only protects against repair bills, it does not cover losses in working time or the speed at which the repair is undertaken, points out Case IH Marketing Manager Charles Blessley. "Case IH's 'Max Service' gives a one-point stop for all questions and problems. This includes overnight delivery of parts, technical help, support machines, etc, if needed."

Service contracts are carried out by Case IH dealers, with prices negotiated locally.