|Top 100 US-based Warranty Providers|
|Largest Accrual Rate Reductions|
|Dec. 2012 to Dec 2013|
| Company||Accrual Rate||Accrual Rate||Annual Change|
|Name||Dec 2012||Dec 2013|
|Helen of Troy Ltd.||2.9%||1.7%||-1.2%|
|Wabco Holdings Inc.||1.1%||0.8%||-0.3%|
|Hill-Rom Holdings Inc.||2.0%||1.6%||-0.5%|
|Juniper Networks Inc.||1.0%||0.8%||-0.2%|
|Mohawk Industries Inc.||2.0%||1.7%||-0.3%|
|General Electric Co.||0.8%||0.7%||-0.1%|
|United Technologies Corp.||0.8%||0.7%||-0.1%|
|Rockwell Automation Inc.||0.6%||0.5%||-0.1%|
|FMC Technologies Inc.||0.43%||0.38%||-0.05%|
|First Solar Inc.||1.2%||1.1%||-0.1%|
|Briggs & Stratton Corp.||1.8%||1.6%||-0.2%|
|General Motors Co.||2.3%||2.1%||-0.2%|
|O'Reilly Automotive Inc.||0.9%||0.8%||-0.1%|
|Western Digital Corp.||1.2%||1.1%||0.0%|
|Ford Motor Co.||1.49%||1.45%||-0.04%|
|Harman International Industries||1.62%||1.58%||-0.04%|
|Johnson Controls Inc.||0.80%||0.78%||-0.02%|
|D.R. Horton Inc.||0.45%||0.44%||-0.01%|
|Standard Motor Products||8.1%||7.9%||-0.13%|
|Advanced Micro Devices||0.52%||0.51%||-0.01%|
|B/E Aerospace Inc.||2.0%||1.9%||-0.03%|
|Advance Auto Parts Inc.||0.66%||0.65%||-0.004%|
|Manitowoc Co. Inc.||1.454%||1.448%||-0.006%|
|Stanley Black & Decker||0.847%||0.845%||-0.001%|
Warranty Accruals for New Homes:
Sometimes they set aside too much and sometimes they set aside too little. All but a few homebuilders seem to lack any sense of aim when it comes to determining how much to accrue for each new home they sell.
As with passenger cars, it's possible with single-family homes to calculate not only the percentage of sales revenue spent on warranty expenses, but also how much money is set aside per unit sold to cover anticipated future warranty costs.
It's a different way of looking at the accrual rate. Rather than expressing it as an expense that's a percentage of revenue, we're expressing the accrual rate as an amount per unit sold. And that should be closer to the way a warranty manager makes his or her own accrual estimate: from the bottom up, based on past experience and multiplied by current units sold.
As with passenger cars, the builders of single-family homes typically include three essential metrics in their financial statements. First, they release the total amount of warranty accruals they set aside each quarter and each year. Second, they release the number of homes they sell, and third, they release the amount of revenue those home sales generate.Read more
Food Service Equipment Warranties:
The commercial appliances used in restaurants cost more to buy but less to keep in good working order. Over the past 10 years, the average warranty expense rates for professional food service equipment has been less than half as much as for home kitchen appliances.
As we continue our journey through the community of U.S.-based manufacturers that report their product warranty expenses to shareholders, we're circling back to revisit some segments that we skipped over the first time around.
In May, we looked at major appliance and HVAC warranties, but we skipped over the small but important group of companies that make professional food processing, cooking, cleaning and refrigeration systems specifically for restaurants, cafeterias, and other commercial customers.
With the HVAC systems used to heat and cool the air, many of the same brands used in commercial office buildings are also sold into homes. Same goes for laundry: Whirlpool Corp. and others have both residential and commercial laundry business units.
Commercial vs. Residential Appliances
However, with food, it turns out that the home kitchen appliance and the commercial food service appliance communities have very little in common. The only brand name that seems to span across both groups is Electrolux AB, which operates a professional sales unit in Charlotte, North Carolina. All the others seem to choose either the home or the commercial market, but not both.Read more
Warranty Accruals per Vehicle:
The German OEMs still have the highest warranty costs worldwide, but the Japanese carmakers are no longer unopposed at the bottom. Both Fiat and Ford are cutting their warranty costs to within range of longtime low-cost leader Honda. And Toyota is well on its way to getting back to normal.
Most of the top passenger car manufacturers continue to reduce their warranty expenses, as calculated by the size of the expense per vehicle and as a percentage of their automotive revenue.
The good news spreads across Europe, Asia, and North America, as we reckon that six of the top eight automotive OEMs saw decreasing warranty expenses in their most recently completed fiscal years.
The bad news is that for some brands, particularly those from Germany, warranty costs remain stubbornly high. And while costs are down from years past, the warranty accrual on a Volkswagen Golf or a Mercedes-Benz C 200 is still four to five times as large as it is on a Honda Accord.Read more
Appliance Service Contract
Though the market has remained relatively flat for years, market shares are changing as online sales are gaining and new players are emerging. Still, six underwriters control 90% of the market share.
In our series of articles on the major appliance service contract industry back in early 2011, we neglected to include one important item: a market share report. Seven consecutive weekly newsletters explored the history of ServiceBench Inc., GE Appliances, Lowe's, and Abt Electronics and Appliances, among others. But before we could get to the pie charts, the calendar mandated that coverage of the Warranty Chain Management Conference needed to begin.
After that was done, we never went back to finish the series.
This week, as part of our current half-year of service contract industry coverage, we'll fix that oversight and provide some details on appliance service contract market sizing and market share. But we'll admit to one major problem: seven of the top ten retailers of service contracts for major appliances sell considerably more service contracts for consumer electronics, mobile phones, and/or home computers. Separating those segments therefore required some heroic assumptions to be made.
So what we're going to say is that our estimates are rough on both edges. They're rough in terms of estimating the amount of premiums paid by consumers for their service contracts, and they're rough in terms of what kind of product the consumer protected with a service contract when they shopped at Best Buy, Home Depot, Lowe's, Sears or Wal-Mart.Read more
New Leaf Service Contracts:
Smaller retailers looking to sell service contracts usually had to choose between running the program themselves or selling another company's self-insured product. Now, there's a company trying to make it as easy as possible for small retailers to sell fully-insured service contracts.
Many small regional and independent retailers are shut out of the service contract industry because the major players won't take on such small accounts, and the retailers can't or won't operate such a program by themselves.
There is, however, another option: a company called New Leaf Service Contracts LLC, which was launched three summers ago specifically to make it feasible for small retailers to sell service contracts that were fully-insured and relatively easy for them to manage.
Sean Hicks, the CEO of New Leaf, said the company's name comes from that familiar old saying, "turning over a new leaf," meaning a new beginning. In this case, it's a new beginning for the service contract industry.Read more
As with luxury cars, we're finding that the smarter the phone and the more advanced its features, the higher the warranty costs. And some of the smartest phones with the biggest market shares are now driving up the warranty costs of their manufacturers.
The smarter the phone, the harder they fall. As these little computers get more compact and sophisticated, their warranty costs are escalating. And it's beginning to hurt some of the largest players.
Two weeks ago, we found that some of the most luxurious passenger cars with reputations for high quality also had relatively high warranty costs. That's not supposed to happen. High quality means low warranty costs, no?
With smartphones, it seems to be a different problem. These units are sophisticated devices that aren't meant to be dropped, sat upon, or left out in the heat, cold, or humidity. But they're also meant to be portable and always available, so abuse and misuse are inevitable.
We just collected some new warranty data that illustrates the problem. Research in Motion Ltd., or RIM, is the Canadian company responsible for the BlackBerry product line. In its most recent fiscal year, warranty claims cost more than seven percent of the company's revenue. And that was the fifth straight year in which warranty costs rose as a proportion of revenue.Read more