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If My Auto Warranty Company Folds, What Am I Left With?

Times are tough in the automotive sector. Car companies are getting bailouts just to help them stay afloat, and new car sales are down sharply. Rising fuel costs and higher insurance premiums have caused more and more people to leave their cars at home more often. And even the average auto warranty company is feeling the pinch. But what happens if the worst happens, and the company you do business with for your extended warranty on your car goes out of business?

There are three main providers of extended warranties and depending on which one you do business with, you may be protected in the case of a company failure - or you may be out of luck like the rest of their creditors.

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Different Outcomes Depend on Situation

If your extended warranty was purchased from the dealer who sold you the car, it is likely either backed by the manufacturer, or backed by the individual dealer. If your warranty was provided by the manufacturer of the car, and that whole company folds, you won't be left out in the cold. Thanks to the structures put in place by the federal government, warranties backed by the parent company will continue to be honored by whoever ends up owning what is left of that company. It might be a new corporate enterprise, or it may become a government entity. Either way, you're protected.

But if your warranty is only valid at the particular dealership at which you bought your car - which is more likely if your dealer-provided extended warranty was cheaper than other options - and that dealer goes out of business, you could find yourself without coverage. You will have to get in line with all the other creditors. Your only hope would be if your dealership was affiliated with a particular brand of car - that manufacturer could, in theory, decide to honor your warranty through another dealership. But that is far from certain, or required at this point.

The least safe option would be an extended warranty that is provided by a third-party company. And make sure you look at your warranty - just because you bought it through the dealership doesn't mean it isn't a third-party backed warranty. If that auto warranty company fails, you may have no recourse and no coverage at all. Your only hope would be the goodwill of the dealership, if you purchased the extended warranty through them. If you purchased the warranty on your own, then you may want to give a quick look at the company who backs your warranty, and make sure that they are stable enough for your tastes in this rocky economy.

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