PRE-PAID & FREE SERVICING: An Investigation into the Benefits and Downsides

There’s been a lot of hype and publicity recently about pre-paid servicing or free servicing which car manufacturers are offering their customers. Well I won’t hide the fact that this is certainly a threat to our business because a large portion of the cars we work on are less than three years old and still under warranty, so it makes sense that pre-paid servicing is well and truly on our radar.

Of course I’m all for people getting a better deal and saving money where they can, but what I want to make sure is that the public are making an educated decision and not falling for any hype or misconceptions, or worse still, paying more than they should.Pre-paid servicing is simply that; service and repairs, paid upfront for the next three to five years or 60,000 kms to 100,000 kms.  My wife and I recently bought a new BMW X3 and I asked the salesman if there was any free servicing in the deal, he indicated that there was that option but I would have had to pay for it, so it wasn’t free at all!  In fact, we paid about $3000 less for the car because we bought it without the free servicing!

These pre-paid service plans are called Service Inclusive packages.  To be eligible the cars need to be less than 12 months old and not had any services yet.  These plans also begin from the date of the first registration.

I suppose the biggest advantage is that the pre-paid service amount could be packaged in the price of the car and included in the lease payments and that sounds pretty good, but then I thought about it for while and came up with the conclusion that if I included the pre-paid service through the purchase of the car, I’m also going to be paying interest on the service component.  One other disadvantage is that you cannot get your money back if you have to sell the car or if it gets written off before the contract expires, however it is transferrable to the new owner, which could make it a good selling point.

I thought the only way I could benefit is if the cost of the pre-paid service amount would be less than if I was to pay for it normally when the service was performed, so I did a ton of research and discovered a lot about this new concept.  I found that if you were to travel an average amount of kilometres per year and continued to take the car back to the dealer for service, you could actually be better off under one of these plans compared to paying the dealer their normal prices, which is a good thing.  The other advantage to pre-paying would be that the prices are locked into today’s prices and shielded from future price rises.

On the other hand, if you were to take your car to an independent service centre like BM Tech, in most cases and depending on which plan you decide on and the amount of kilometres you travel per year, you would still come out spending less than if you purchased a pre-paid service plan from the dealer!Caption2

BM Tech could therefore be a viable, cost saving option – especially since we service all of our cars by the book using original parts, meaning that there wouldn’t be any difference in quality.

There are two levels of Service Inclusive plans: BASIC and PLUS.  The BASIC plan covers all levels of servicing as indicated on the Condition Based Service (CBS) computer, but excludes brakes, clutch and wiper rubbers. This plan includes, scheduled oil services, vehicle checks, brake fluid changes, spark plugs, microfilters as well as air filters.

The PLUS plan includes everything as in the Basic plan but also includes brake pads and discs, and wiper rubbers (wiper rubbers only with an oil change), and would you believe a worn clutch!  Another little quirk which will definitely go against the pre-paid plans is that the PLUS plans seem to be priced on the assumption that the brake discs will always need to be replaced when the pads are due.  This is not always the case.  If you pay for a PLUS plan but it turns out that discs are not required on your car during the plan period, then you will almost certainly end up paying significantly more with the pre-paid plan than if you serviced it with us; it really is a gamble sometimes!

I have tabled three examples, all based on the BMW 325i E92. The first table is for a car travelling low kilometres, the second is based on average kilometres and the third is based on high yearly kilometres.  These tables are there to highlight how much you would save or, I hate to say, lose if you were to take your car to BM Tech for service versus purchasing a pre-paid plan from a dealer.

My calculations are based on our experience of when the services are normally likely to be due.  This is not an exact science because the BMW Condition Based Service (CBS) computer uses sensors to monitor the condition of the worn parts to ascertain the extent to which servicing is necessary.  However, it’s fair to say, based on our experience and assuming you drive your car sensibly, Oil Services on modern cars are usually required at around 30,000 kms, and brakes are normally replaced at around 40,000 – 50,000 kms, so my calculations are based on these assumptions.  Time based services like Vehicle Checks and Brakefluid flushes are performed every 12 and 24 months respectively.

The first example (Table 1) is based on a typical 325i E92 travelling approximately  12,000 kms per year which has a pre-paid plan limited to 60,000 kms. It’s important to note that prices will vary depending on how many kilometres a car travels per year, but 12,000 kms or less is very common for a suburban vehicle.

Table1

It’s important to note that the BM Tech estimated costs also take into account estimated CPI increases each of 2.5% PA, but actual increases could of course be more or less than this.

 I think the next example is likely to be the most common one. Table 2 is based on the same BMW travelling an average of 15,000 kms per year which has a pre-paid plan limited to 100,000 kms. Among the cars we see, 15,000 kms per year seems to be about what most people who live in the suburbs travel these days.

Table2

As you can see in table 2, if this sort of usage matches how you use your car, BM Tech is likely to be a winner.

The following example (table 3) is based on the same car travelling 20,000 kms per year which has a pre-paid plan limited to 100,000 kms.

Table3

This last table highlights the fact that the more kilometres you travel per year, the more likely you are to get value out of a pre-paid plan.

To summarise, I suppose I have to admit that these plans are kind of okay if you intend to travel lots of kilometres, but then again, if you were to travel the average kilometres per year, then BM Tech would be the obvious choice.  If you intend to have your car only serviced at the dealer, a pre-paid plan is worth considering.

What I find very interesting is that the pre-paid plans don’t seem to be too cost effective for cars which travel at or below the normal average kilometres, which makes me think that the manufacturer has carefully designed and calculated the plans to ensure that they are not unduly disadvantaged!

My thoughts, based on my research and calculations, would be to keep your money in the bank, let it earn interest (or pay down some of your mortgage!) and then pay for your service as you go with an independent specialist like us – you’ll more likely be better off, but then again I am biased!

If you would like more information or would like to see my calculations in detail, then please don’t hesitate to come into one of our branches. We would be more than happy to discuss the advantages and pitfalls of pre-paid plans with you.

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