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Tuesday, 2 July, 2002, 10:35 GMT 11:35 UK
Inquiry into electrical goods warranties
Electrical goods
Warranties for electrical goods can be expensive
There are serious questions over the value to consumers of extended warranties for electrical goods, the UK's consumer watchdog has said.


Expensive and disproportionate action

Dixons

Publishing its verdict after a 10-month investigation, the Office of Fair Trading said consumers were not adequately informed or protected, and competition was not effective.

The report also said self-regulation of the 500m market had failed.

It said it was referring the matter to the Competition Commission.

Extended warranties typically add about 50% to the cost of electrical goods, and the OFT thinks sales tactics of retailers appear to exploit limited consumer information of the market.

How expensive are warranties?
199 for a 430 washing machine
130 for a 180 mini-disc player
Source: OFT

Dixons, the UK's largest electrical retailer, which has an estimated 32% of the extended warranties market slammed the decision.

In a statement, it said: "There is no justification for this expensive and disproportionate action. It is inappropriate and unjustified and we have provided material to the OFT to demonstrate this."

Long-awaited

Electrical retailer Comet said it was disappointed with the OFT's findings but said it would offer its full co-operation to the inquiry.


There are serious questions about how effectively competition in this market is working for consumers

John Vickers, director general of Fair Trading

"We take pride in the belief that our warranties offer customers complete peace of mind and excellent value for money," the company said in a statement.

"The market for extended warranties is extremely competitive both in terms of price and the level of protection afforded to the customer."

The report is the first to be published by the OFT's Markets & Policy Initiatives division, which was established in October 2001.

The Competition Commission has 12 months to report to the government on whether a monopoly situation exists in the sector, or whether the market is operating against the public interest.

John Vickers, director general of fair trading, said: "Our study concludes that there are serious questions about how effectively competition in this market is working for consumers.

"It is now for the Competition Commission to investigate these questions in depth and report. We hope that making this reference may lead to improvements in competition and consumer choice."

Excessive cost

Extended warranties cover consumers for the cost of any repairs or replacements within a specified period, typically four years, beyond the one year normally covered by a guarantee

The study highlighted the high costs of taking out an extended warranty.

The study included an example of a five-year extended warranty costing 199 on a 430 washing machine.

However, the average repair cost is just 51.

It also found a mini-disc player priced 180 on which the warranty was 130.

Helen Parker, editor of Which?, said: "Heavily pushed warranties have been a pain in the neck and the back pocket for consumers for far too long.

"However, up until now, the OFT has failed to do much about it. Hopefully, the referral to the Competition Commission will finally remedy the situation.

Scare tactics

Since 1995 the sale of extended warranties has been governed by a code of practice set up by the British Retail Consortium, but the OFT said that few retailers had followed it.

The report said that sales staff often emphasised scare stories about the risk of product failure and the difficulty and expense of obtaining independent repairs.

But research by the OFT found that consumer satisfaction was as high with repairs carried out by independent repairers as those carried out under extended warranties.

Mr Vickers advised consumers to "think before you buy".

See also:

18 Jun 02 | Business
11 Jun 02 | Business
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