Attention, CES: Your stuff breaks

By Brian Bergstein

updated 7:31 p.m. ET Jan. 9, 2008

LAS VEGAS - Consumer Priority Service Inc.'s humble little stand at the International Consumer Electronics Show has no blaring speakers, no shiny flat-screen display, no "booth babes" in tight clothes. But it is memorable for its honesty.

The company facilitates the extended warranties that electronics retailers sell to consumers. In the midst of an ardent celebration of gadgetry, Consumer Priority Service is reminding people that this stuff isn't flawless. Sometimes it needs to be fixed.

"There's nothing else out here in this entire conference that can attach to any product that's sold," said Jack Heftez, a salesman for the Newark, N.J., company.

The key truth in CPS is on a sign in its booth that reads: "Any product + CPS more profit." Above "more profit" it shows a pile of greenbacks.

This is because extended warranties are enormous money makers for retailers, generally more profitable than the underlying products. Consumers will pay a lot for peace of mind.

It's likely that CPS is overestimating how often repairs are necessary and what they would cost. In fact, Consumer Reports magazine has urged consumers to reject almost all such warranties, which sometimes cost several hundred dollars.

If extended warranties are not a good bet, Consumer Priority Service might not deserve the blame.

It arranges for repairs of broken items, but it doesn't directly sell the warranties. It sells them to retailers, which resell them to consumers at a markup. And Heftez said his company adjusts its prices regularly to reflect how often certain products need to be fixed. That means that stores pay less for service contracts on goods that don't really break much.

Whether the stores pass the savings along to consumers is another question.

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