How they work and how to deal with them successfully.

More and more vehicles today are covered by service contracts - also referred to as "extended warranties." Many shop managers are uncomfortable dealing with these plans. In this article, we'll cover how they work, what they cover, and offer some tips on how shops can work smoothly with them.

Most contracts come from the carmakers themselves or independent insurance companies. As you might expect, General Motors Corp., Ford Motor Co., Toyota Motor Sales, U.S.A. Inc. and DaimlerChrysler AG are big players. Big names in the insurance industry like GE and Traveler's also issue contracts. Contracts from these top-tier firms are safe purchases.

Smaller companies sell other plans, and some are not backed by insurance at all. Consumers should be wary of plans from no-name companies because of the risk involved if the company will not honor their claims in the manner that they expect. As in many other areas of life, you get what you pay for. A consumer who declined a $2,000 contract from Ford or GE should not be surprised if the $600 contract he bought online proves to be worthless.

The first thing to look at on any plan is the term of coverage - how long it lasts. You'll find some plans with terms that run from the date the car is originally put into service, and other plans that run from the date the plan is sold. So a "seven-year plan" bought today on a four-year-old car may be good for either three or seven more years - make sure you know which it is.

The expiration mileage also varies. Some plans expire at a set mileage, for example, at 75,000 miles. Other plans expire after a certain distance - for example, a 50,000-mile plan written on a car with 23,212 miles on its odometer will expire at 73,211 miles.

Some plans will direct consumers to the dealership. Examples are Lexus Certified or GM Continuous Protection. Those contracts - sold with a new car or certified used car - direct the customer to a franchised dealer. These plans may not allow an independent to perform covered work except in an emergency - check before proceeding. If an independent shop works on the car, it may find that the plan requires a discount on parts and labor - check first. Independents may not want to work with these restrictions but dealers are obligated to do so.

Other plans allow freedom of choice in the repair facility used. These plans reimburse labor using Mitchell or Motor times, and they pay list price for original equipment manufacturer parts in most cases. These plans have a history of being good to work with as an independent.

Finally, you will encounter inexpensive plans sold by used car dealers or sold over the Internet. Often costing only a few hundred dollars, these plans seem too good to be true and they often are. They may be limited in scope, with few failures being covered, and coverage limited to partial payment on parts and labor.

There are two kinds of coverage, with the best being "excluded component coverage." Such plans cover the entire car with the exception of certain excluded items. These plans are most similar to a new car warranty. They are often referred to as "bumper to bumper."

They will cover most parts on the car with the exception of items on the maintenance schedule such as brake pads, spark plugs, fluid changes, tires, batteries, exhaust and body parts. But be careful to keep your customer's expectations realistic. Every plan I know of requires customers to keep their vehicles serviced by the factory schedule and also to keep records. A service contract is not a substitute for maintenance.

The next step down is "included component coverage." These plans only cover items from a list. For example, they may cover an AC compressor but not the control relay. These plans are usually offered in several levels from basic powertrain to the whole car.

With "included component plans," you need to be careful how you present a claim to get what your customer is entitled to. For example, on many cars, the window motor and lift arm is one integrated part. If you report the arm as failed, you have no coverage under some plans. However, if you had reported the motor as failed, it would have been covered - even though they are one and the same. Read the list of covered items carefully before you make a claim to avoid surprises.

If you call in a large or unusual claim, the administrator may tell you they are sending an inspector to look at the vehicle. Most companies will send an inspector if your claim is unusual or exceeds some figure above $1,000. Having a job inspected may hold up work for one or two days.

You can minimize the chances of inspection by only reporting the parts that are actually bad. A shop that calls in a claim for upper and lower ball joints and tie rod ends is probably going to get inspected because the administrator knows that the chances that all of these parts are bad at one time is near zero.

Remember that these plans only pay for parts that are actually broken. If a car comes to you with a broken right ball joint, you may think it prudent to change both ball joints, but the plan will only cover the one that's actually broken. In next month's article, we will look at how claims are processed and paid.

John Robison is general manager of JE Robison Service Company of Springfield, Mass. It is an independent auto dealer and service center specializing in European vehicles. Robison's company is an authorized Bosch Service Center. Robison Service sells and supports service contracts backed by APCO Easycare, the extended warranty subsidiary of Ford Motor Co. John can be found online at www.robisonservice.com or e-mailed at Robison@robisonservice.com .