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What is a Dealer Warranty?

By Christopher John
Updated May 16, 2024
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A dealer warranty is an obligation by the company selling certain goods to make repairs or replace such goods if they fail to function as promised. A dealer warranty is often associated with the sale of automobiles. A dealer warranty, however, can apply to other types of items such as mobile homes, motorcycles, computers, or any other tangible products. In the U.S., most states have adopted the Uniform Commercial Code (UCC), which regulates sales transactions of goods and services and provides consumers with certain legal protections. The UCC also regulates and establishes various types of warranties.

A vehicle service contract is often confused with a dealer warranty. This is likely due to car dealers selling vehicle service contracts to consumers. A vehicle service contract, however, is a contract that requires the seller to make repairs to a vehicle in the event of specified problems arising with the vehicle. It operates like an insurance agreement because the seller is only obligated to pay the costs of repairs. In contrast, a dealer warranty can arise through express or implied promises made by a dealer, and a consumer is not necessarily required to pay additional costs for such warranty. 

A dealer warranty can be an express warranty, which is created when a dealer or seller makes promises orally or in writing that a product will perform in a certain manner. It is always best to put a dealer warranty in writing, however. For instance, if a car dealer promises a customer that a truck is capable of towing a certain amount of weight and the promise causes the buyer to purchase the vehicle, then an express warranty is formed. It is not necessary for the dealer to use the terms warranty or guarantee for an express warranty to arise. Further, it is unnecessary for the dealer to have an intention to create a warranty. The dealer warranty or express warranty concerning the capability of the truck hauling a specified amount of weight arises through operation of law under the UCC. 

This kind of warranty may also arise under the UCC under the implied warranty provisions. This occurs when the dealer or seller knows of the specific purpose of a consumer in buying a specific item and the buyer is relying upon the skill and judgment of the dealer in the transaction. For example, if a dealer knows that a consumer needs to purchase an item that will perform in a certain manner and selects or recommends a specific product, a dealer warranty or an implied warranty of fitness will arise. The UCC protects consumers by allowing consumers to cancel a contract for the purchase of goods that fail to function as promised. The UCC provides consumer with certain other legal protections. 

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