Now that they've grown accustomed to publicly disclosing the warranty expenses that they used to keep strictly confidential, American manufacturers have released a rich record of six years of data that can help external observers calculate baselines and benchmarks for individual product types, companies, and industries.

In the past seven newsletters, we've toured the warranty world from one end to another, looking at the hundred biggest players and the 15 most warranty-intensive industries. This week, we're going to wrap it up with a look at the overall totals and averages.

What we intend to do this week is provide readers with six charts in this newsletter and links to at least 15 additional charts on a separate Web page. That way, we won't test readers' tolerance of graphics but we can still make the entire story available to those who are interested.

Claims Paid per Year

Let's begin with the most basic measurement: the amount of claims paid worldwide by U.S.-based manufacturers. Warranty Week estimates that publicly-traded American manufacturers paid out around $28.7 billion worldwide last year, up just a little less than one percent from the $28.5 billion total seen in 2007. Claims were up in the automotive and high tech sectors, but were down in the building sector.

In the charts below, we've attempted to keep the data and the color scheme consistent with the one used in the 2007 year-end report as well as several newsletters published in recent weeks. However, even old data sometimes changes, so there may be slight differences in cases where formerly late-filing companies finally caught up with their Securities and Exchange Commission responsibilities, or formerly non-filing companies suddenly realized their FASB Inquiry No. 45 disclosure requirements.

We always save the totals and averages for last, because some companies don't file their 2008 annual reports until late March. Others, particularly those in the midst of bankruptcies or other accounting crises, don't file their annual reports until late April or early May. In some years, the resulting holes are so big that the data is of questionable accuracy. This year, however, we are happy to report that only Monaco Coach and a handful of other medium-sized players are absent from the year-end totals.

In Figure 1, it's clear that while there was an upward trend in every year since 2003, the rate of increase is now slowing. From 2004 to 2005, claims grew 7.8%. But then from 2005 to 2006, the rate of growth fell to 3.3%. It was 1.8% from 2006 to 2007, and then it fell to 0.8% from 2007 to last year.

This is really good news. Combined with the trends revealed in Figure 2 below, one could safely say that either product quality is rising, repair costs are falling, or warranty managers are becoming more efficient. We suspect the idea that repair costs are falling is the least believable, which leaves us two very positive theories to consider.

Yes, product sales are falling, and they seem to have declined 5% in 2008 for the 800 or so companies we're tracking, but these trends were evident even in the good old days of 2006 and 2007. And we think the reason nobody writes those stories about "soaring warranty costs" any more is because warranty professionals have gotten really good at their jobs in recent years.

Above is the six-year trend in warranty claims, divided into 15 slices. Click here to see the equivalent charts displaying annual figures for warranty accruals and warranty reserves. We don't want to ruin the surprise, but there were actual declines seen in both measures from 2007 to 2008, and not just reductions in the rate of increase.

In Figure 2, the big news is how the claims rate has been rising as a percent of sales all through 2008 and the second half of 2007. However, keep in mind that the vertical axis on this chart is stretched quite heavily, so what amounts to an 0.1% change (from 1.57% to 1.67%) looks bigger than it really is. Also, the overall average accrual rate for all manufacturers remains awfully close to the record low it hit in the first quarter of 2007 (when it fell to 1.53%).

In a way, there's lots of good news in Figure 2. Back in 2003, when many manufacturers didn't know what "normal" was -- when there wasn't much information about what other companies were paying -- warranty costs were higher. And then, in 2004 and 2005, the level of automation increased and tactics such as early warning became widely used. In 2006 and 2007, these efforts helped raise efficiency and reduce costs. And then in 2008, the bottom fell out when Lehman, Fannie, Freddie and AIG hit the wall and everybody stopped shopping.

What a difference a year makes! In the May 8, 2008 newsletter we published a 2007 year-end report that included a link to a series of pie charts for the five years between 2003 and 2007. We shall provide one of the 2008 members of that series below and two more in yet another page full of additional charts collected in a 2008 Special Report which can be found online at www.warrantyweek.com/newsarchive/ww20090507-special.html.

Overall, the recession has had a noticeable impact on the data in this latest collection, reducing sales of course, but also reducing the need for repairs and therefore warranty spending. If a product isn't sold, or perhaps isn't even manufactured, it won't need to be fixed. And that's showing up through a reduced need for warranty accruals, and a reduced balance in the warranty reserve funds.

Claims rose last year, but only by the slimmest of margins. Figure 3 chops up the $28.7 billion in 2008 claims paid into 15 industries, which in turn are organized into one of three major sectors. Within the blue-shaded "vehicles" section are automotive OEMs, auto parts suppliers, and aerospace manufacturers. There are seven industries grouped together under the "high tech" electronics banner, and all are colored in reddish or brownish hues. And then there are four industries grouped together within the greenish "buildings" sector: new homes, appliances, building materials, and power generating equipment.

Of the 15 industries included in Figure 3, seven saw their warranty claim "market shares" decline in 2008. The biggest change was seen for telecom equipment manufacturers, followed by automotive OEMs, appliance companies, and new home builders. The automotive and homebuilder declines are predictable. The appliance decline is no shock given the homebuilding downturn. But telecom equipment? That one was unexpected.

Conversely, eight industries saw their warranty claim "market shares" increase in 2008. They were led by power generating equipment companies and auto parts suppliers, which each saw their "market shares" grow by a percentage point in 2008. Smaller increases were seen by makers of computers, medical equipment, and consumer electronics.

Additional pie charts in the 2008 Special Report detail how warranty reserves and accruals actually shrank last year, and how some of the individual slices also changed size. Those pie charts in turn are the annual updates to the 2003 to 2007 charts published a year ago.

The Vehicle Sector

In Figures 4, 5 and 6 below, we take the same slices shown in Figures 1 and 3 and group them into one of three more easily chartable sectors: vehicles, high tech, and buildings. The dollar amounts are detailed within each chart, where possible, and the conversion of those respective dollar amounts into percentages of sales are included in the 2008 Special Report.

In Figure 4 below, the dollar amounts reported during the past six years for claims in the three "vehicle" industries are detailed. Notice the slight decline in claims paid by the automotive OEMs. That probably has much to do with the sale of the Land Rover and Jaguar divisions by Ford, as well as the general decline in sales volumes recently affecting all automakers. Less new cars sold means less new cars fixed.

Notice also how the dollar total for the auto parts suppliers grew in 2008 after shrinking in both 2004 and 2007. Switch over to the claims and accrual rate charts in the special report (Figure 4c) and you'll see how claims and accruals as a percentage of sales has also crept upwards over the past few years. This is probably a sign that the automotive OEMs are becoming more successful in their efforts to shift more of their warranty costs back to their suppliers.

There's no contribution by Chrysler in these charts, because it went from being foreign-owned to being privately-owned without spending any time as a public U.S.-based company. But the contributions of Ford and General Motors to the overall totals for the automotive OEMs are massive, although several truck and motorcycle manufacturers are counted there as well.

Much the same thing happens in several other industries. Because so much audio and video equipment is imported, the Microsoft Xbox product line heavily dominates the list of domestic consumer electronics manufacturers. Because Alcatel acquired Lucent and because other big players such as Nortel are in financial difficulties, Motorola heavily weights the telecom industry. And because GE is so massive, it dominates the power equipment industry's overall totals and averages.

In the high tech electronics industries listed in Figure 5, last year was relatively quiet. The computer OEMs have kept their claims cost relatively stable as sales rose (at least until late in the year). The telecom equipment vendors (primarily Motorola) have gotten their warranty costs under control. Disk drive, semiconductor and peripheral manufacturers saw little movement in their totals or averages. And in the consumer electronics segment, Microsoft has finally gotten over the worst of its Xbox 360 debacle. All of those trends are visible in Figure 5, and in Figures 5b through 5f in the separate special report.

The overall claims total for these seven industries grouped together has never fallen since measurements began in 2003, and in 2008 only two of the seven showed any individual decline (computer peripherals down 1.3% and telecom equipment down 18%). In the April 2 newsletter, we detailed how Motorola heavily influenced the telecom claims decline.

Furthermore, the peripherals decline seen in 2008 was only the latest in a multi-year cost reduction trend. Also, look closely at the data storage numbers (in pink). Though the 2008 total was up marginally, it's the first annual increase in claims cost ever measured for this industry. Every other year, it shrank. And the semiconductor numbers (in yellow), while they were up in 2008, were up only marginally for the second year in a row.

The Building Trades

Finally, we wanted to repeat one chart from the April 16 newsletter and mention that while the claims cost for both new home builders and the makers of building materials seems to have peaked in 2006, the claims cost of appliance makers didn't peak until 2007. And the claims cost for power generating equipment (primarily GE) didn't peak until 2008. In hindsight, how could anyone have missed all these clues that a recession was coming?

The claims and accrual rates for these building-related industries is detailed in the special report (Figures 6b through 6d). And while the claims and accrual experiences of some of the major players were shown to be relatively stable in the April 16 and April 23 newsletters, there's little stability in the overall averages.

Below are the links to seven other reports that together can hopefully provide an overview of warranty costs in a variety of industries. Retired GE CEO Jack Welch allegedly once said "That which cannot be measured cannot be managed," and that's certainly true of warranty management. Hopefully, all the totals, the averages, and the company snapshots can help warranty professionals both measure and manage their own claims processing systems.

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