June 22, 2004

ISSN 1550-9214         

Industry Segments:

Year to year, each industry's overall share of warranty claims changes slowly, as do their individual claims rates as a percentage of sales. But because many companies operate in more than one industry, precise calculations are elusive.


One of the greatest impediments to making an accurate allocation of all product warranty expenditures by industry is the simple fact that many companies simply won't fit neatly into one single industry category. Most modern automobiles contain both computers and air conditioning equipment. Several of the leading air conditioning manufacturers also are leaders in aerospace. Some of the largest automotive manufacturers are making vehicles for use on lawns, farms, mines, and construction sites.

The Standard Industrial Codes are little help. SIC 3510, for "engines & turbines," contains not only the lawn mower company Briggs & Stratton Corp., but also Brunswick Corp., makers of boat engines and sports equipment, not to mention Cummins Inc., a leading diesel engine manufacturer. Toolmaker Black & Decker Corp. is over in SIC 3540 for "metalworking machinery and equipment," along with TV tower manufacturer SPX Corp. Telecom and semiconductor manufacturer Motorola Inc. is in the same SIC as avionics manufacturer Rockwell Collins Inc.

No Warranty Segment Data

Many manufacturers quite carefully chop up their sales revenue by product type. But none chop up their warranty expenses at all. Of the 861 U.S.-based manufacturers tracked by Warranty Week, not one provides any segmenting data of their warranty claims or accruals by product line, division, or industry.

Given these facts, virtually anything we attempt to do in the realm of warranty by industry is going to be wrong. The question is how wrong. Either we're going to arbitrarily chop up a company's warranty expenses as if they arise proportionally to revenue, or we're going to arbitrarily exclude some companies from multiple industries they're most definitely in. We chose the latter as the lesser of two wrongs.

For this, the final installment of the analysis of first quarter 2004 warranty claims and accruals, we tried to put every manufacturer into one and only one industry category. It was a question of where they fit best. Then we took a total of warranty claims for all companies in a given category, and compared these figures to overall revenue to compute a claims rate for each industry.

For the purposes of these few charts only, we removed Motorola and Honeywell from the auto parts category but kept them in the telecom and semiconductor sectors; removed American Standard Companies Inc. from auto parts but kept it in the HVAC, building materials, and appliance sectors. Honeywell also was removed from the HVAC category. Eaton was removed from HVAC but remained in auto parts. General Electric was counted in only the power equipment industry, the stated source of most of its warranty claims. Ingersoll-Rand Co. Ltd., makers of refrigerated truck trailers, remained as an auto OEM but was removed from HVAC. Some of these modifications involved somewhat arbitrary choices about which is now their "core" industry. For Motorola, founded as a maker of car radios, and for Honeywell, best-known for its ubiquitous thermostats, this was a difficult choice. But remember, the goal was to minimize double-counting.

Overlapping Industries

The recreation vehicle category -- where warranty provision is led by Fleetwood Enterprises Inc. and Thor Industries Inc. -- was found to overlap excessively with the automotive OEM and parts categories. So although we tabulated the $56.9 million in first quarter 2004 RV warranty claims, this sector was not included in the overall pie charts. It was the same story for mining equipment, as led by Terex Corp. and NACCO Industries Inc.; for farm equipment, as led by Caterpillar Inc., Deere & Co., and AGCO Corp.; and for security equipment, led by Tyco International Ltd., Rockwell Collins Inc., General Dynamics Corp., and NCR Corp.

Each of these companies is included in the aerospace, telecom, and/or auto OEM and parts categories, as appropriate, making the categories for farm equipment, mining equipment, and security equipment overly duplicative. Therefore, these four industry sectors were dropped from the pie charts.

For the record, here are the first-quarter 2003 and 2004 totals for warranty claims by vendors either partially or entirely within those industries:



Industry Sector  1Q03 Claims     1Q04 Claims 
Farm Equipment $291m $316m
Mining Equipment $52.5m $65.5m
Recreational Vehicles $55.7m $56.9m
Security Equipment $354m $341m


The consumer electronics category remains problematic. Because many of the top Japanese, Korean, and European companies that dominate this industry do not report any warranty figures at all, most of the big names are missing from the list. Many of those who remain are American computer companies already counted elsewhere, which are now dabbling in CE sectors such as MP3 music players, big screen TVs, and digital cameras. For these reasons, the entire category is a mix of under-counting and double-counting, and the results are at best misleading. Further research is needed before we can make any educated guess regarding warranty claims in the consumer electronics sector.

In the past week, another 12 manufacturing companies have filed their first quarter 2004 financial statements with the U.S. Securities and Exchange Commission. This brings the overall total of fully-reporting warranty-issuing manufacturers up to 697; partially-reporting companies up to 47; non-reporting companies up to 79; past-deadline companies up to 20; and yet-to-report companies up to 18, for a total of 861 warranty-issuing manufacturers. If anything should change in the weeks ahead, the online versions of this most recent batch of Warranty Week columns will be modified accordingly.

Double-Counting

Large manufacturing companies remaining in multiple categories, and therefore double-counted, include American Standard Companies Inc., Caterpillar, Cummins, Maytag, United Technologies, and Whirlpool. Unlike many of those eliminated from one or more categories, these companies really do have multiple core product lines that cross industry lines. For instance, Cummins and Caterpillar sell diesel power generators as well as truck motors. American Standard is big in both plumbing and air conditioning (Trane). United Technologies makes jet engines (Pratt & Whitney), helicopters (Sikorsky), avionics (Hamilton Sundstrand), elevators (Otis), and air conditioners (Carrier). The total effect of these double-counts inflated overall warranty claims by approximately 10%. Therefore, please consider the market "shares" for each industry to be approximate.

During the first quarter of 2004, total warranty expenditures topped $5.9 billion. Allowing for double-counting, Warranty Week estimates that approximately 40% was automotive; 29% was information technology; 17% was house and home-related, and the remainder was "other". Split further, as in the pie chart below, the automotive sector (blue) was made up of OEMs and parts/components suppliers; the IT sector (red) was split into computers, peripherals, data storage, telecom/datacom, and semiconductors; the home-related sector (green) was split into new homes, HVAC, building materials, and home appliances; and the "other" sectors (black and white) included power equipment, aerospace, and medical and scientific equipment.



Figure 1
Warranty Claims
by Industry
First Quarter 2004


Source: Warranty Week



Click on the chart to see a larger image of the pie.

As can be seen in the above pie chart, warranty claims in the blue sections were dominated by the claims of automotive OEMs -- final vehicle assemblers such as GM and Ford. Likewise, the reddish sections were dominated by the computer OEMs -- home of Dell, IBM, HP, Apple, and others. Speculation about why their shares are so outsized was discussed more completely in the June 2 edition of Warranty Week. Meanwhile, in the greenish sections, the shares are somewhat more evenly split between new homes, appliances, HVAC/R, and building materials.

Readers of the Plain Text Edition of Warranty Week are encouraged to find a Web browser with which to view the online pie charts at http://www.warrantyweek.com/archive/ww20040622.html

Warranty Market Shares

A year ago, during the first quarter of 2003, total warranty expenditures were just under $5.8 billion. Allowing for double-counting, Warranty Week estimates that approximately 39% was automotive; 30% was information technology; 17% was house and home-related, and the remainder was "other". Within the 14 sub-categories, the "shares" were more or less the same as earlier this year, although both auto OEM and computer OEM did change by just less than a full percentage point each. The telecom/datacom sector was the only other industry in which the overall share of warranty claims changed by a significant amount (-0.5%).



Figure 2
Warranty Claims
by Industry
First Quarter 2003


Source: Warranty Week



Click on the chart to see a larger image of the pie.

Not surprisingly, the two pie charts look very similar, except for those slight percentage changes for automotive and computer OEMs. Given the large number of manufacturers behind each of these slices, it takes a massive move in the same direction by several major players to change the percentages by much. However, for every United Technologies or Lucent Technologies that turns in a plunging claims report, there are usually a few others who see their claims rise. Things change slowly across entire industries.

As mentioned in the June 15 column, the trend lately has been decidedly downwards. Warranty claims in the first quarter of 2004 fell both in sheer dollars and in percent of sales terms. After remaining nearly level all of last year at around 1.8% of sales, claims suddenly took a dive to 1.6% of sales in the first three months of 2004.

It turns out that claims fell in numerous industries. We showed you the automotive OEM sector last week, and we'll show you the next four largest this week: computer OEMs, HVAC/R, aerospace, and power equipment. Together, these five industry sectors account for almost 70% of all warranty claims, as shown in the pie charts above. So it's no surprise that if claims fell overall, they also fell in each of these five sectors.



Figure 3
Warranty Claims
in Five Industries
1Q 2003 to 1Q 2004


Source: Warranty Week



Click on the chart to see a larger image.

Of the five largest warranty industry sectors, only HVAC/R and electrical power equipment saw their claims rates rise from a year ago, and both of those sectors also showed declines from the fourth quarter of 2003 to the first quarter of 2004. In fact, both HVAC and power equipment saw seemingly one-time bumps upward in their rates during the fourth quarter. They are both now back to what seems to be a more normal range.

Automotive OEMs are the most stable, with their claims rates rising or falling by only slight amounts each quarter. Computer OEMs and power equipment vendors are the most volatile, as evidenced by the curvature of the red and orange lines in the chart above. By the way, we had to alter the color code a bit in Figure 3, because white and gray don't show up very well on a white background. But basically, this is the same data expressed in a different way -- as a percentage of sales rather than as a percentage of all claims.

Numerous readers have written in over the past several weeks to offer opinions about why the charts became somewhat erratic during the first quarter of 2004. Some said it was indeed a seasonal fluctuation. Others suggested that warranty accounting practices are themselves somewhat seasonal, with accountants forcing every last expense onto the books before the fiscal year closes and leaving the first quarter of the next fiscal year somewhat fallow as a result. Most agree that whatever the cause, more data would help. This is the conclusion of the first year-over-year comparison of warranty claims and accruals. With a few more quarters of data and a few more years to compare, it will become much more apparent what the trends and causes are behind these fluctuations.

4CS iWarranty

 

This Week’s Warranty Week Headlines

Hindustan Motors increases warranty on Lancer cars to three years or 50,000 km in a bid to increase sales, build customer loyalty, and tout the brand's reliability.
Sify.com, June 22, 2004
20 ways you waste money on your car, including not contesting rejected warranty claims.
MSN Money, June 22, 2004
Lab Results LLC offers free mold assessments to New York area schools using a black Labrador dog specially-trained to sniff hidden mold and moisture in walls. Basketball great Michael Jordan files mold claim against Dryvit Systems Inc.
eMediaWire, June 22, 2004
BMW of North American and Apple Computer Inc. to add iPod music player to most new vehicles, integrated into steering wheel controls and stored in the glove box.
AdAge, June 22, 2004
Attensity Corp. says Whirlpool Corp. is among the first users of its Relational Extraction Server 3.0, giving it enhanced access to warranty claims data, customer feedback, and field service records.
Press Release, June 21, 2004
 

More Warranty Headlines below



SAS Institute

 

Warranty Headlines (cont’d)

Dixons plc to announce financial results Wednesday; analysts speculate what the company will do with its £525m in cash, of which £340m is its extended warranty reserve.
The Independent, June 21, 2004
Japanese insurers reopen investigations into accidents involving trucks and cars built by Mitsubishi Motors Corp. to see if the automakers should pay claims on vehicles that have since been recalled with defects.
Associated Press, June 21, 2004
Appliance saleman suggests putting warranty details in a plastic bag and taping it to the side of the unit.
Houston Chronicle, June 20, 2004
NASA continues monitoring Mars Rovers, still producing data long after the 90-day parts warranty expired.
Australian Broadcasting Corp., June 20, 2004
Consumer who sued Subaru of America Inc. under the Song-Beverly Consumer Warranty Act must pay defendant's $75,000 legal bill; judge found claim was fraudulent.
Business Wire, June 18, 2004
 

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NEW Customer Service Companies

 

Warranty Headlines (cont’d)

Ford Australia recalls 233,791 vehicles made before 2001 that used a specific failure-prone thread tightening technology in their steering columns; says analysis of its own warranty data found 28 similar incidents.
AutoWeb, June 17, 2004
Chevrolet hopes new Aveo's five-year/60,000-mile powertrain warranty inspires customer loyalty, even at its low $9,455 base price.
Detroit Free Press, June 17, 2004
Warranty Direct Ltd. analyzes its claims data and finds hourly labor rates in UK are highest in the Thames Valley near London and lowest in Scotland.
Auto Industry, June 17, 2004
NHTSA continues to insist that release of TREAD Act warranty data would cause "substantial competitive harm" to automakers.
AutoWeek, June 17, 2004
Warranty Corporation of America to use the services of CBL Data Recovery Technologies Inc. to help customers retrieve surviving data from failed disk drives.
PR Newswire, June 17, 2004
 

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Warranty Headlines (cont’d)

Wal-Mart sticking to its January 2005 deadline for going live with its pilot RFID implementation, expects more than 100 suppliers to be in compliance by then.
Wireless NewsFactor, June 17, 2004
Warrantech Corp. appoints Stephen R. Williams as president of Warrantech Consumer Product Services Co., was vice president of retail sales.
Press Release, June 16, 2004
Computerworld ranks Assurant Solutions number 14 on its 2004 list of the top 100 workplaces for information technology professionals.
Press Release, June 16, 2004
To qualify under Best Buy's lemon policy, attorney suggests consumers always write a note stating the problem that needs rep[air and keeping a copy; store chain is more likely to honor replacement requests when confronted with paper trail.
Pittsburgh Post-Gazette, June 15, 2004
How to turn an iPod into a pirate radio station by boosting the range of the iTrip FM broadcasting attachment, opening the unit, repositioning the antenna, and voiding the warranty.
Engadget LLC, June 15, 2004
 

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Entigo, founding sponsor of Warranty Week

 

Warranty Headlines (cont’d)

Kentucky and Indiana among the states with the weakest laws governing used car warranties; vehicles can be sold "as is" even if they break down on the way home.
Louisville Courier-Journal, June 13, 2004
Tilley Endurables sells a pair of safari pants to a journalist, age 29, with a lifetime warranty against rips and tears.
Globe and Mail, June 12, 2004
Seagate India won't make one-to-three-year lengthening of hard disk drive warranties retroactive to previous buyers, but the unsold current stocks of distributors will be upgraded.
ChannelTimes, June 12, 2004
A.M. Best Co. affirms the financial strength ratings of A (Excellent) or A- (Excellent) with a stable outlook for the subsidiaries of Assurant Inc., including the Assurant Group.
Insurance Journal, June 11, 2004
Confusion surrounds warranty claims made against Shell for selling tainted gas that ruined fuel gauges; customers have trouble finding service stations that will do the repair work for free.
Florida Sun-Sentinel, June 11, 2004
 

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Entigo, founding sponsor of Warranty Week

 

Warranty Headlines (cont’d)

Techtronic Industries, makers of the the Ridgid line of power tools sold by Home Depot, lengthens warranty to three years to face down criticisms of low quality and slow sales.
Home Channel News, June 10, 2004
Interphase Corp. opens new Web site giving customers access to warranty claims status, built on Vignette Application Portal and Vignette Application Builder.
Press Release, June 10, 2004
Blain Supply Inc., owners of Midwestern Blain’s Farm & Fleet store chain, to use ARI's PartSmart electronic catalog system for warranty support.
Press Release, June 10, 2004
Tarion Warranty Corporation, formerly the Ontario New Home Warranty Program, opens centralized claims department in Toronto to manage all homeowner claims related to new homes and condominium units in Ontario.
Press Release, June 10, 2004
Entigo Corp. releases Entigo Warranty 4.1, which includes support for Oracle 9i, WebLogic 8.1, JDK 1.4, and ILOG JRules 4.5, and promises faster installation and simpler maintenance.
Press Release, June 9, 2004
City of Norwalk, Conn., agrees to install skatepark in Calf Pasture Beach by year's end, Rampage LLC issues 15-year structural warranty, locals organized by Axis Boardsports influence design and agree to safety rules.
Norwalk Hour, June 9, 2004
Lawmakers worry about unusual broken welds on soon-to-open light rail line in St. Paul, Minn., want more information on the rails' five-year warranties, and say the new state governor has cut back on public disclosures of project's status.
KSTP-TV Minneapolis, June 8, 2004
Phu Nhuan Service Shareholding Co. opens a mobile phone showroom and warranty center in Ho Chi Minh City.
Vietnam News Agency, June 8, 2004
Long Island Rail Road selects Maximo Transportation package from MRO Software for fleet management, work order tracking, inventory, material requirements planning, component movement, and warranty tracking.
Press Release, June 7, 2004
 

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