November 22, 2005 |
ISSN 1550-9214 |
Appliance Warranties:As with computers and cars, warranty claims in a range of 2% to 3% are typical for most appliance brand names. But unlike cars or PCs, warranty costs for appliance and HVAC manufacturers appear to be highly seasonal.Manufacturers of major appliances aren't all that different from automakers. They take sheet metal, motors, and various electronic components and assemble them into a finished product. They also aren't all that different from computer manufacturers. Today's washing machines, dishwashers, refrigerators, and heating and cooling systems contain both hardware and software, so that when something breaks it's possible that all it needs is a update of the control software. More basically, what the automakers, computer makers, and the manufacturers of consumer appliances and heating/cooling systems all apparently have in common are similarly-sized warranty expenses. In the November 9 issue, Warranty Week detailed how the warranty claims rates of HP, Dell, and IBM each seem to be converging on the 3.5% mark, as if that's a natural level for computer manufacturers. In the November 15 issue, we showed how both GM and Ford were spending somewhere between 2.5% and 3.0% of their vehicle sales revenue on warranty claims. This week, we're going to show by example how several of the large appliance manufacturers also find their warranty claims rates in that same general range. Whirlpool, for instance, seems to be repeating an annual cycle in which first quarter claims average 3.0% to 3.1% of revenue and fourth quarter claims rates fall closer to 2.2%. Maytag has remained within a range of 2.8% to 3.5% for the past 11 quarters, according to financial figures filed with the U.S. Securities and Exchange Commission and collected by Warranty Week. Spending More on WarrantyWe're not saying that warranties are the same whether they're issued for computers, dishwashers, or sedans. But it does seem as if in these three industries, the major OEMs -- the well-known brand names sold by retailers and dealers to end user customers -- expend similar proportions of their sales revenue on warranty work. While all manufacturers on average spend 1.7% or 1.8% of their revenue on warranty claims, these brand name OEMs spend closer to 3% on warranty work. In this column, we're combining the usually separate appliance industry and the heating, ventilation, and air conditioning (HVAC) industry into one great big category with 55 members. We're including companies such as United Technologies and Honeywell which are only partially in the appliance business, and we're excluding companies such as General Electric who have stated that most of their warranty expenses arise from other product lines (electrical power equipment, in GE's case). Kitchen, personal, and household appliances are in, but outdoor power tools and gardening equipment are out. We're also repeating a couple of members of the automotive or computer manufacturing clubs in the appliance category. Some, such as Ingersoll-Rand clearly belong in both, because they make products such as refrigerated trucks that have a place in each industry. Others, such as Honeywell, Rockwell Automation, Modine Manufacturing, and Johnson Controls supply electrical and electronic components to multiple industries. And since they don't report their warranty expenses industry by industry, we have to include them in multiple categories. In addition, some of the appliance makers such as Whirlpool, American Standard, and Maytag don't report service revenue separately from product revenue. At the very least, they must be enjoying some success with their sales of extended warranties. They also must be bringing in some revenue from repairs performed after all warranties have expired. So what we've done is deducted from their reported revenue totals an amount we believe is representative of what each is receiving from non-product sources, based on ratios and amounts reported by close competitors. In Whirlpool's case, for instance, we're deducting 10% of revenue from the total before dividing it into warranty claims. If this were not done, the company's latest claims rate would have been 2.5% instead of 2.8%. If more accurate figures for service revenue were to become available at some future date, we'd go back and recalculate new claims rates to replace these estimates. Seasonal Claims PatternThe Whirlpool chart below shows a company that usually starts the year with a high claims rate that usually drifts lower as the year winds down. It happened in 2003. It happened again in 2004. However, for the first three quarters of 2005 the claims rate has actually been rising. It remains within the historical range seen in 2003 and 2004, but the trend line has now reversed itself. Figure 1 |
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This Week’s Warranty Week Headlines | ||
Carfax now offers a free flood damaged vehicle lookup service on its Web site. Decatur (IL) Herald & Review, November 18, 2005 | ||
Intel says computer chips causing problems in China are counterfeits. People's Daily, November 18, 2005 | ||
Arizona homeowners unhappy with First American Home Warranty's claims resolution process. KPHO Phoenix, November 18, 2005 | ||
Bombardier service center opens at the Dubai airport, to provide regional maintenance and warranty services for Learjet. AME Info, November 19, 2005 | ||
Chrysler to lengthen warranties from three to five years and give away free gas with purchases until Jan. 3. Associated Press, November 17, 2005 | ||
More Warranty Headlines below |
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Warranty Headlines (cont’d) | ||
GM, Ford and Chrysler compete with new rebates and promotions, including longer warranties. CNN Money, November 21, 2005 | ||
Sanyo Canada equips new LCD home theatre projector with a three-year warranty. Press Release, November 17, 2005 | ||
Norsat International lengthens its microwave equipment warranties to three years. Press Release, November 16, 2005 | ||
Hewlett-Packard receives the J.D. Power and Associates Certified Technology Service and Support certification for its customer service. Press Release, November 16, 2005 | ||
PA Attorney General sues Oleg and Angela Shtutman of Value Kia for numerous violations, including not honoring used car warranties. Press Release, November 15, 2005 | ||
More Warranty Headlines below |
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Warranty Headlines (cont’d) | ||
N.E.W. Customer Service Companies wins a 2006 International CES Innovations Design and Engineering Award for its Warranty Minder Web portal. Press Release, November 15, 2005 | ||
Aon Corp. considers selling its warranty, credit insurance and property & casualty underwriting businesses. Press Release, November 15, 2005 | ||
Volvo agrees with the California Air Resources Board to lengthen the warranty on faulty throttles from seven to 10 years. Associated Press, November 15, 2005 | ||
Wal-Mart Stores reports $69 million in product warranty program expenses in quarter ending Oct. 31. Press Release, November 14, 2005 | ||
IBM opening a new warranty repair center for its tape drives in Singapore. CMPnet Asia, November 14, 2005 | ||
More Warranty Headlines below |
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Warranty Headlines (cont’d) | ||
Warrantech Corp. appoints David J. Workman president of the companys consumer product services division. Press Release, November 14, 2005 | ||
Planar LCD screens have industry-leading three-year warranties with a two-day advance replacement clause. Entrepreneur magazine, November 14, 2005 | ||
Consumer advocate suggests scaning or copying recepits printed on thermal paper before they fade. Richmond Times-Dispatch, November 13, 2005 | ||
SmashMyiPod.com crew buys an iPod, declines the extended warranty, and crushes it in front of the salesman. Globe and Mail, November 12, 2005 | ||
AMR Research seeks participants for a survey examining the management of parts returns and the use of warranty data. Online Posting, November 11, 2005 | ||
More Warranty Headlines below |
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Warranty Headlines (cont’d) | ||
OESA presents a one-day conference on reducing warranty expense on Nov. 29 at the Hyatt Regency in Dearborn MI. Press Release, November 11, 2005 | ||
A.M. Best Co. affirms the B++ (Very Good) rating of Aon's UK underwriter, London General Insurance Co. Ltd. Press Release, November 11, 2005 | ||
By selling discounted extended warranties, Wal-Mart is attacking the business model of Circuit City and Best Buy. Business Week, November 10, 2005 | ||
Ultimate Warranty Corp. agrees to offer its automotive aftermarket products through the eMenu interface of DealerTrack Aftermarket Services. Press Release, November 10, 2005 | ||
J.D. Power and Associates' 2005 Major Home Appliance Study ranks KitchenAid and Samsung highest in customer satifaction for dishwashers, ovens and refrigerators. Press Release, November 9, 2005 | ||
More Warranty Headlines below |
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