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Many see the collapse of Eagle Warranty Corp. as detrimental to the used-car industry, as well as a continued warning to dealers to perform their due diligence before trusting a provider.
On Dec. 18, Eagle Warranty, based in Eynon, Pa., became the subject of a civil lawsuit filed by the Pennsylvania Attorney General’s Bureau of Consumer Protection.
According to Tom Corbett, the state’s attorney general, Eagle Warranty sold extended warranties and service contracts for used cars in Pennsylvania, Delaware, Kentucky, Michigan, New Jersey, New York, Ohio, Rhode Island, South Carolina, Tennessee, Texas and West Virginia.
The company abruptly stopped operating on Dec. 11.
“This is yet another black eye for the industry,” said Paul Pawlusiak, president of AutoSave, a Farmington Hills , Mich.-based extended warranty and service contract provider.
He said his company has been trying to contact Eagle Warranty’s dealers to work out an arrangement.
John Weber, owner of Weber Motor Co. in Grantville, Pa., still recalls dealing with a similar situation a couple of years ago.
In 2007, WPC Associates Inc., a Harrisburg, Pa., service contract provider closed shop abruptly, leaving many dealers, along with Weber, to deal with angry customers.
Weber ended up paying for several repairs himself, at what he called a “significant” cost.
The incident did have an upside. Weber said he gained loyalty from his customers.
The incident did have an upside. Weber said he gained a lot of respect and loyalty from his customers.
“They saw that I would bend over backwards to keep them happy,” he said.
Weber has since been selling extended warranties himself, paying claims with funds he keeps in escrow.
He has been approached since by other providers, but has opted to sell the products himself.
“I’ve looked at some contracts, but I just didn’t like the way they read,” Weber said.
Taking a close look at potential providers is recommended for all dealers who wish to continue doing business with service contract providers.
Keith Whann, general counsel for the National Independent Automobile Dealers Association, said dealers need to start doing their homework on a provider immediately.
“First, dealers need to look closely at the structure of the contract, and remember that the cheapest isn’t always the best,” he said.
Whann also advised dealers to look closely at a company’s financial stability and track record for paying claims.
“Often what happens is people don’t make complaints until it’s too late,” he said. “Dealers can’t be shortsighted.”
According to Fred Small, founder of Frederick M. Small Insurance Services, a Massachusetts-based consultancy, dealers should be skeptical of flashy brochures and seek out information on the company and its products.
“Dealers are just trying to do the right thing and feed their families,” Small said. “It’s unfortunate that sometimes some of the information they’re given can come back and make them look like the bad guy.”
He said dealers should find out about a provider’s administrators, how long they’ve been in the business and request as many references as possible.
Small said dealers can also get a sense of a provider by asking their agents questions.
He said if the agent does not seem knowledgeable about the provider’s products and menu, it could call into question the stability of the provider.
Another area that dealers need to look into is the who underwrites the provider’s contracts.
Both Whann and Small strongly advise dealers to learn as much as possible about who is insuring their service contract provider, and the differences between risk retention groups and regular insurance companies.
According to Small, the regulations of risk retention groups are less stringent that captive insurance companies, so dealers should seek as much information as they can.
According to David Robertson, founder of the Association of Finance and Insurance Professionals, service contract providers should be forthcoming with information about the actual amount of cash in its reserves, and openly show how much goes toward paying claims.
He said this, along with strong knowledge of the provider’s underwriter, should make it easier for dealers to avoid doing business with questionable companies.
For example, Joe Kuhta, regional sales manager for Guardian Warranty Corp., based in Avoca, Pa., said his company publishes the financial information of where its dollars are invested to allow dealers to make an educated choice on using them as a provider.
But Roberston said to ensure a beneficial relationship with a service contract provider, dealers need to avoid abusing the provider’s service.
He said claim reserve amounts are made by a series of time-tested projections that are established by the dealer agreement, vehicle contract, administrator claim adjustment policy and the underwriting agreement.
Robertson said if all parties involved handle their responsibilities properly, the desired end result should occur. |
