Consumer warns car buyers: Save your money

Tuesday, 6 November 2018

Raybon Kan was upset when his mechanical breakdown insurance didn't pay out.

Car buyers are being warned not to waste their money on unnecessary mechanical breakdown insurance.

Comedian Raybon Kan has complained after being sold the insurance by Palmerston North car dealer Lee European.

The dealership told him the policy would cover faults with the vehicle's air-conditioning and transmission, which a pre-purchase inspection had indicated may require repair.

However, the dealer not only failed to provide a copy of the policy, it also didn't tell Kan the insurance excluded pre-existing faults and he wouldn't be able to claim on it if the air-conditioning or transmission problems turned into a major expense.

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Kan took Lee European to the Motor Vehicle Disputes Tribunal, which ordered the dealer to pay $2000 for the insurance and $2200 for subsequent repairs to the air-conditioning system.

Consumer NZ said the policies often had long lists of things that weren't covered.

Consumer NZ said any buyers who had been mis-sold mechanical breakdown insurance should ask for a refund.

Chief executive Sue Chetwin said the insurance was heavily promoted by car dealers and could add more than $1000 to a vehicle purchase.

But she said the cover was hardly worth having and complaints showed the insurance continued to be sold with misleading claims about the protection it provided.

'Dealers claim the insurance will protect you if vehicle parts suddenly fail and need repair.

But the policies typically have long lists of problems that aren't covered, including any pre-existing faults with the car and anything deemed the result of faulty repairs,' Chetwin said.

Jason Lee, of Lee European, said he told purchasers that the policies could be called on when a car broke down to the extent that it stops running.

'The issue with these policies is there are so many things that are covered and aren't.'

He said Kan's air-conditioning had not failed completely and did not meet the requirements for a payout.

'We ended up having to write a cheque to pay it. We didn't have to write the cheque but we did. Typical insurers, they'll do anything they can to wriggle out of it. I tell consumers if your car breaks down and can't move that would be covered but if it's just making a noise, something isn't 100 per cent, this isn't a new vehicle warranty. It doesn't cover any of that stuff.'

He said the experience had cost him about $5000. 'It's the same with any insurance, you need to read the fine print.''

Chetwin said car buyers needed to be remember they already had protection under the Consumer Guarantees Act (CGA) and didn't need to rely on mechanical breakdown insurance.

'If a car dealer sells a vehicle that's not of acceptable quality, it has a legal obligation to sort out the problem.'

Chetwin said people should ask for a refund if they had been told the policy would cover all faults, thought it was compulsory, had it added to their car loan without knowledge, never received a copy of the policy or were misled about their rights under the Consumer Guarantees Act.

Chetwin said car dealers were keen to promote mechanical breakdown insurance because they stood to earn a commission on each policy sold.

'In our view, this insurance isn't worth the cost. You're better off spending your money on a pre-purchase inspection and getting the vehicle regularly serviced after you buy.'

A spokesperson for the Insurance Council said the policies would offer protections beyond the Consumer Guarantees Act.

'Most mechanical breakdown warranty policies cover wear and tear, as opposed to only manufacturing defects and parts failure, and are available to purchase on second-hand cars. With many second-hand cars in New Zealand being imported from overseas without comprehensive histories, a mechanical warranty offers an opportunity for consumers to be covered for breakdowns of their vehicle which would not otherwise be covered under the CGA.

'Under the Fair Trading Act, warranty providers are required to outline at the front of their policy documentation the rights consumers have under the Consumer Guarantees Act and what benefits and features their warranty provides over and above those rights.'