The customers coming to our dealerships are more and more educated. They've read all the possible consumer reports online. That's why they're often wary about certain aspects of the car buying process. Auto warranties is probably one of the most controversial topics since many warranty providers have been caught into various scam allegations.

The biggest dilemma for a dealer is whether to sell the cars "As is," with implied warranty or with a third-party auto warranty.

From a dealership's point of view, the "As is" option is the least hassle. The customer pays cash, drives away and who cares if the engine falls out a mile down the road, right? Well, since most of us are in this business for the long run and we care about our reputation, because in many cases it's the reputation that sells the cars, we want to make sure that our reputation is spread by word of mouth. The clients referred to by a friend or relative are the easiest to sell to.

In normal circumstances (let's say selling electronics or household goods), the customer always goes for the item that has the longest possible warranty. With the cars, it's slightly different. Although getting a warranty always sounds tempting, a few rouge traders have made a bad name for the whole auto warranty industry.

Mutual understanding and trust is a key between a customer and a dealer. The truth is that not every used car buyer needs an extended warranty. For example, an older car won't benefit much from a warranty plan anyway because the list of parts and labor covered by a policy will be extremely limited.

The best way to sell more policies is to add value along the way. When you identify a client that could benefit from a warranty, select the best possible product and explain in plain language how this could save money.

For example, if a certain model tends to develop an electrical fault and you can offer a policy that covers these faults, you're doing a great job. Whereas, if you sell a warranty that doesn't cover the most important issues, when the customer's car breaks down and his warranty application is declined, whom will he blame? You, of course!

If you decide to work with a third party auto warranty provider, make sure you understand completely how and when they can assist your customers. It's obvious that the customer would have to read the small print, but it's also very important that you train your staff accordingly and make sure they understand the product they're offering. This warranty guide document will give you a good overview of the potential pitfalls of a 3rd party warranty product. There are many things that are not covered and things that make a warranty policy void. If your staff end up giving wrong information to the customer, you'll be at fault (and not the warranty company). An additional resource to check is this consumer guide on extended warranty. It points out the importance of a clear component coverage policy.

The Federal Trade Commission has now responded to the issues with warranty providers by detailing the exact procedure how a warranty product has to be sold. Check the Used car rule and scroll down to the Warranty section.

Following these guidelines will ensure that we remain within the law and keep out of trouble.