Necessary, But Unwarranted

Next to styling, power and the solid thunk of quality as the door is closed, auto dealers like to spiel about the warranties behind their cars. By the time the happy customer drives off, he has every reason to believe that that handsome document from the manufacturer promises an absence of problems with his new car, fast, expert service when problems do occur and, in fact, just about everything short of Medicare.

As any car buyer knows, things rarely turn out that way. Last week, confirmation of that fact came from the Federal Trade Commission, which concluded in a 205-page report: "Service retains the status of a 'necessary evil' in much of the automobile business." The report, which will lead to full-scale hearings on warranties in January, makes clear that as sales continue to rise service can only become more necessary--and more evil.

Warranties are an old feature that began to get new emphasis in Detroit in the early 1960s. They are now under fire because, according to the commission, they quite often wrongly assure a buyer that "he takes delivery of a car substantially free of defects," and that defects that do appear "will be promptly and effectively corrected."

Dropouts. Many buyers have discovered otherwise. The commission cites one survey of 50,000 buyers of new 1963, 1964, 1965 and 1966 cars. Approximately a third complained that their autos were delivered in "unsatisfactory" condition, and a fourth of those with warranties said that repair work was shoddy. Why so many beefs? Part of the trouble, according to the FTC, is in the assembly lines. Sales are moving too fast for the assemblers, much less the inspectors, to keep up with the pace. More than 25% of 1967-model cars were recalled for possible safety defects. That, says the FTC, "speaks very poorly for quality control."

Conditions may be even worse at the dealer's service area. There is a nationwide shortage of about 140,000 mechanics. The industry finds that many dropouts who drop into the repair business never do learn the trade. Those with rare aptitude often find better-paying jobs with an airline, or even on an auto assembly line. Service under warranties, which cover about 10% of auto-repair business, suffers from an additional handicap. Dealers say that the automakers are niggardly with compensation for warranty work, allowing only a 25% profit margin for parts, compared with the 40% or more that a dealer can charge for nonwarranty work. As a result, dealers usually do warranty work only on cars that they have sold. The work they do, says the FTC, is often "substandard" because the mechanic is urged on to other jobs.

Detroit's answer to the problem seems to be to reduce the warranty periods. The basic two-year, 24,000-mile warranty that applied to 1968 models has been cut to one year and 12,000 miles for the 1969s. That slash saves the industry, by FTC estimate, some $40 per car, or more than $300 million.

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