What you need to know about older car warranties

A growing trend in auto retail is the focus on older cars. Millions fewer cars were produced during the pandemic, causing shortages in the younger used car sector, and attention is shifting to older cars as a result.

Indeed, latest data from Auto Trader shows that the number of 10-15 year old cars on the platform have risen 7.9% – and demand has actually outpaced even this, rising 10.9% year-on-year. “Older vehicles are outperforming the market by some margin,” said data and insights director Richard Walker.

This trend is also evidenced by warranty information from RAC Dealer Network, which partners with Assurant in the warranty and aftersales sector. It has seen a 67% rise in warranties sold for 10 to 20-year old cars since the pandemic, with vehicles in this age range almost doubling their share of policies in the first half of 2023, to 1 in 10.

Warranties for cars aged five to 10 years are also up 34% – compared to a decline in the number of warranties sold for cars aged three to five years. “These figures show how post-pandemic vehicle shortages, and the subsequent ageing of the car parc, are having an increased impact on warranties, with a marked shift towards the upper end of the age ranges in which we cover,” said Lee Coomber, RAC client director at Assurant.

“Dealers are finding themselves in a situation where they are selling more aged vehicles, a development that looks set to continue for some time to come.” Warranty providers have responded to this, “providing the cover that car buyers desire even though claims on older vehicles are obviously higher and more costly”.

To bring retailers up to speed with warranties and older cars, here are six things you need to be aware of.

1. Warranties are important even for older cars

Auto Trader data shows that values for cars aged 10 to 15 years are up a healthy 11% year-on-year. “Warranties have become much more important as consumers find themselves buying cars that tend to be older and more expensive in the post-pandemic market,” said Lee.   

“The previous economic crisis in 2008 showed that, when money’s tighter, customers are actually looking for better levels of protection, not less. Now, since the pandemic and with increasing levels of financial uncertainty, people value the security of a robust and comprehensive warranty.”

Lee adds the RAC used to offer a basic Silver level of cover, but it was becoming less and less popular, so it was removed: now, Gold is the minimum, still offering comprehensive cover for any age and any mileage of vehicle. Platinum and Platinum Plus packages are also available.

2. Franchises are offering older car warranties too

It is not just independents who are now offering older car warranty packages from companies such as RAC and Assurant, explained Lee. “We work with car supermarkets such as CarBase and AvailableCar, along with franchise retailer groups such as Lookers.” Where a vehicle falls outside the manufacturer approved used terms [see page 3], the alternative warranty provider steps in – and as many franchises are seeing opportunities in older cars, so the uptake amongst them is growing.

“Two or three years ago, a franchised retailer taking an older Ford Focus in part exchange would generally just put it to auction. Now, we’re seeing a lot of the franchise groups keeping those vehicles to retail them, because of the lack of good stock available. They can still make really good margins through them, too.”

This, added Lee, is starting to impact independents, who are struggling to access good quality older stock because it’s not going to auction at the same level as before.

3. Older car warranty periods are increasing

Traditionally, older cars were offered with a three-month warranty. “Nowadays, we’re seeing the majority of retailers are moving towards six months as a minimum term – this is mainly driven by consumer law and gives customers better protection.

“We’re even seeing a number of dealers moving into 12 months as a standard mandatory warranty giveaway – which gives them more upselling potential into 24- and 36-month warranties.”

4. Parts prices still have a bigger impact on risk than age

While the age of a car obviously impacts the risk profile, Lee says the biggest impact on risk today remains the increase in parts prices. Assurant has plenty of experience in dealing with older cars, but the increase in parts prices is a more recent phenomenon. “They’ve probably gone up 25% over the past two years.”

Overall risk is monitored on a monthly basis “but dealer by dealer, we probably do it on a daily basis, looking at what premiums are being generated, what claims are coming in, what we’re claiming against and what impact all this has on the dealer performance.” Such careful analysis helps keep a track on claims and, as a result, keep premiums in check.

5. Quality warranty providers give good levels of franchise support

RAC and Assurant have 44 field-based account managers working with retailers on an individual basis, says Lee. “Everyone can access a bespoke element of training on selling and upselling warranties, plus systems support, and we have a call centre to give customer back-up too.”

On top of this, the company has a corporate sales team that offers targeted support to bigger groups such as Lookers. They can access a suite of reporting tools offering full visibility on an individual dealer’s performance.

6. Retailers can make money out of older car warranties

“One of the key advantages of a retailer selling a warranty is that it gives them the chance to capture any claims work. A warranty isn’t just about the profit on the warranty itself, it’s about the potential profit on the work. This doesn’t get mentioned very often, but is a big deal.”

Lee adds that because the products are defined as maintenance and repair plans, they’re not an FCA regulated product – and they fall outside the 50% commission element as well.

“Retailers can make significant amounts of profit from doing a good upsell on a warranty.”