Most people don’t buy a new car without hearing the dealership finance manager warn about “how foolish it would be” not to protect their investment from unexpected repairs. But extended warranties sell costly “peace of mind” for repair nightmares that probably won’t occur, according to a survey of more than 8,000 readers recently conducted by the Consumer Reports National Research Center.

The data supports the advice that Consumer Reports has given for a long time, that extended warranties are a poor deal for almost every product. CR’s findings show that this advice applies to most new cars as well.

The survey also found:

¢ Sixty-five percent of those surveyed said they spent significantly more for the contract than they got back in repair-cost savings. Respondents said their extended warranty cost them $1,000 on average while providing an average benefit of $700. A big reason: 42 percent of extended warranties in the survey were not used, in most cases because the vehicle didn’t need repairs or the standard manufacturer’s warranty sufficed.

¢ About one in five respondents said they had a net savings. In general, extended warranties were a better deal for those who bought more troublesome cars. When CR looked at net costs by car make, only owners of Pontiacs and Jeeps broke even because on average they had covered repairs that equaled the warranty cost.

¢ Only 38 percent of buyers said they were highly satisfied with their purchase, which puts extended warranties near the bottom of dozens of services rated by CR, including home, auto and health insurance.

¢ Twelve percent of buyers reported having trouble getting repairs when they used their extended warranty because of contract terms that excluded coverage for the needed repair or parts, or because of disputes with the claims administrator.

The survey included buyers of extended warranties for cars in the 2001 and 2002 model years. That allowed sufficient time for the factory warranties to expire, as well as several years of extended coverage.

CR found that for Lexus owners, the average loss to date was $600; for Toyota owners, $550; for Hyundai, Mazda and Subaru owners, $400; and for Chevrolet, Honda and Nissan owners, $300. The analysis showed that the need for serious repairs is uncommon, mainly because automobiles today are more reliable than ever, and chances are that what’s covered won’t fail. The sellers of extended warranties know what parts tend to break within the coverage time and mileage, so buyers are betting against the house.

The downside of extended warranties

The experience of CR’s readers who bought extended warranties and a closer examination of how they work show why the odds are stacked against the buyer:

¢ Not insurance, not a warranty. Many consumers think of extended warranties as insurance, but these arrangements are most accurately described as prepaid repair contracts. The contracts are usually handled by independent auto warranty companies that are not subject to the same close regulation and oversight as insurers.

¢ High sales commissions. Since extended service contract pricing is not regulated, dealers charge whatever the market will bear, and a 50 percent cut for sales commissions is not unusual.

¢ Unlikely catastrophe. While concern about future repairs is what mainly drove people to sign up for an extended service plan, for the most part their worst fears did not materialize.

¢ Tricky coverage terms. While contracts offer seemingly generous periods of coverage, the buyer gets less than meets the eye, since the core coverage doesn’t kick in until after the original factory warranty is up.

¢ Lots of fine print. Many brochures wax eloquently about “comprehensive” coverage but usually don’t say much about numerous exclusions and limitations.

¢ Bankruptcy risk. Last year, Ohio-based auto warranty company Ultimate Warranty left more than 137,000 customers holding the bag on an estimated $45 million in expected claims after it went bust.