May 22, 2007
sponsored by PCMI
ISSN 1550-9214         

HVAC, Appliance & Building Material Warranties:

Since so many manufacturers straddle the plumbing, appliance, and HVAC industries, we're profiling them together. But warranty occurs at very different rates for each product type. And some of the most expensive products from a warranty point of view seem to be small kitchen and personal grooming appliances.

To close out our annual tour of the manufacturer's warranty landscape, we're taking a quick look at several types of products aimed at the home and the office.

Heating, ventilation, air conditioning and refrigeration manufacturers, along with makers of kitchen and bathroom appliances, tools, and building materials make up roughly 6.8% of the $28 billion in annual claims reported so far by all types of U.S.-based manufacturers. So it's easy for them to get lost amongst the automotive (45%) and high-tech (36%) manufacturers that dominate the warranty landscape.

Back on April 24, we took a look at new home builders, who have historically accounted for an additional 2.5% to 3.4% of the warranty landscape over the past four years. These are essentially their suppliers, as well as the suppliers of systems, machines, fixtures, and tools to the actual homeowners.

As detailed in Figure 1, the HVAC and appliance makers account for the majority of the group's warranty spending. The makers of tools and building materials not only spend less dollars on warranty claims, but also spend a smaller proportion of their manufacturing revenue on warranty.

Figure 1
US-Based HVAC, Appliance & Building Material Manufacturers:
Warranty Claims per Year, 2003 to 2006
(in $ Billions per Year)

HVAC, Appliance, Tool and Building Material Manufacturers

Together, these two categories saw claims grow 2.7% last year, after a 10.8% jump from 2004 to 2005 and a 7.7% increase from 2003 to 2004. Last year, the building materials category accounted for most of the growth, turning in a 4.2% expansion rate in claims paid. From 2004 to 2005, it was the HVAC and appliance makers who accounted for the bulk of the growth, with a collective 18% increase in the amount spent on claims.

Of course, sales also grew in the interim, so warranty as a percentage of revenue remained relatively unchanged. As depicted in Figure 2, the HVAC and appliance manufacturers have remained within their 1.5% to 1.8% range for 15 of the past 16 quarters, and the tool and building material manufacturers have stayed within their 0.6% to 0.75% range in every quarter since warranty data became available in early 2003.

Figure 2
US-Based HVAC, Appliance & Building Material Manufacturers:
Warranty Claims Rates, 2003 to 2006
(As a % of Product Sales)

HVAC, Appliance, Tool and Building Material Manufacturers

Individual manufacturers quite frequently fall outside these bounds. But usually, when one sees a sudden big change, the others don't, so the averages remain relatively predictable. Within heating, cooling, and washing appliances, we find that the bigger the box, the longer the warranty and the higher the warranty cost. In fact, some of the makers of the really large central heating and air conditioning systems designed for commercial buildings experience warranty claims rates as high as anything seen in the auto or computer industries.

That having been said, the highest claims rates we found came from companies making small kitchen and bathroom appliances. They also showed the most volatility, with one company seeing its claims rate soar from 2% to 5% within a year. So perhaps there is less of a correlation between warranty duration and claims cost than we thought.

HVAC & Tools in Other Industries

We should note that Carrier, as part of the United Technologies conglomerate, is not counted here. Instead, it's in the aerospace category, as is Honeywell, Crane, and a handful of others who cross the line between air conditioning and airplanes. Johnson Controls, despite its acquisition of York International, is still in the auto parts supplier segment, as are Illinois Tool Works and Modine Manufacturing.

That leaves us with about 109 current or former warranty providers whose claims are included in Figures 1 and 2. of them, Whirlpool Corp. is by far the largest warranty provider, reporting $459 million in claims last year and $294 million in 2005, before it acquired Maytag (which would have ranked third were it still independent).

Whirlpool doesn't report its service revenue, which somewhat complicates the claims and accrual rates computed in Figure 3 below. To make the claims and accrual rates as accurate as possible, all non-manufacturing revenue must be subtracted from the total sales figures. That excludes finance, insurance, mortgage, and investment revenue as well as service, consulting, and consumables revenue. It also excludes extended warranty revenue, which of course isn't itself a physical product.

In cases like Whirlpool, what we do is estimate the non-warranted revenue segment and subtract it out from the total. It's highly unlikely we're exactly correct, so take these figures with some degree of uncertainty. They could be a tenth of a point higher or lower.

Figure 3
Whirlpool Corp.
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

Whirlpool claims and accruals

In every quarter but one, Whirlpool has kept both its claims and accrual rate between 2.5% and 3.5%. There does seem to be something of a seasonal pattern to the data, with peaks occurring in three of the past four winters and troughs in three of the past four autumns. However, as the actual claims paid totals suggest (the blue bars), the pattern has little to do with the actual dollars paid, and probably has more to do with seasonal sales fluctuations.

Note the growth in the size of the blue bars in 2006 but also note the relative flatness of the red and green lines. This suggests that as Maytag joined the family, claims continued to be paid at the old Whirlpool rate. That in itself is an achievement, because at times Maytag's claims rate was somewhat higher than Whirlpool's. That old Maytag repairman was busier than he let on.

American Standard & Trane

The second largest warranty provider in these segments is American Standard Companies, which conveniently enough belongs in both segments. Its Trane operation is a major HVAC vendor, and its plumbing and fixtures business earn it a spot in the building materials category.

Therefore, take the numbers in Figure 4 as an example of what happens when the two are blended into a single warranty profile. They're actually closer to the HVAC/appliance average, which to an outsider would suggest this is the dominant portion of the company when it comes to paying warranty claims. And although we're not going to graph plumbing competitors such as Masco and Fortune Brands for you this week, their warranty payout as a percentage of revenue is usually well below the 1% level.

Figure 4
American Standard Companies
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

American Standard claims and accruals

Besides the Moen brand of faucets, Fortune Brands is also a major supplier of whiskey (Maker's Mark, Jim Beam, etc.) as well as cabinets and locks. Masco has the Delta and Peerless brands of faucets, as well as cabinets, paints, doors, and windows. So neither can be called a "pure play" in plumbing. But we still believe that claims rates are generally lower in the plumbing business than in HVAC.

Lennox International

If there's anything close to a "pure play" in HVAC systems, it would have to be Lennox International. Yet Lennox also makes fireplaces and chimneys, but, if you think about it, what's that but old-fashioned heating?

In Figure 5, it's pretty clear that Lennox sees a spike in its claims rate during the coldest months. But as is the case with Whirlpool, the blue bars show that the pattern has more to do with sales fluctuations than with actual claims paid. What is clear is that whether sales go up or down, Lennox usually keeps its accrual rate close to the 1.0% to 1.2% range.

Figure 5
Lennox International Inc.
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

Lennox claims and accruals

Black & Decker is both a tool and appliance manufacturer, not to mention plumbing, with such brands as DeWalt, Price Pfister, Kwikset, SnakeLight, and Dustbuster under its control. The problem is, it reports its warranty spending only once a year, so in Figure 6 what we've done is to split their reported figures into four equal parts. That makes the lines for their claims and accrual rates somewhat bumpy, but these fluctuations are purely reflections of their quarterly sales figures.

The fourth quarter figures are probably the most accurate of the series, and they have rather consistently come in between 1.7% and 1.9% for both claims and accruals. In two of the past four years, the claims and accrual rates were within hundredths of a percentage point of each other, and in the other two there was barely a tenth of a point between them. As a result, the company's warranty reserve has remained very close to the half-year level, meaning the total balance was very close to what the company paid out in claims over six months. Or, to put it another way, the annual claims total was twice the reserve balance.

Figure 6
Black & Decker Corp.
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

Black and Decker claims and accruals

If you're looking for seasonality, look no further than Helen of Troy Ltd. But again, the curves have more to do with sales fluctuations than with any real seasonality to claims. People may buy more hair care appliances towards the end of the year as the holidays approach, but the appliances will break at any time.

Note how all four peaks in the claims rate came in the second quarter, and how all four troughs came six months later. The accrual rate was somewhere in the middle, but note how both rates were close to the five percent mark in 2005. Seasonality is one thing, but this is evidence of an actual manufacturing problem. And -- what a shock -- the company's financial statements for the quarter ended May 31 and the year ended Feb. 28, 2005 are completely silent about any such problems.

Figure 7
Helen of Troy Ltd.
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

Helen of Troy claims and accruals

Finally, we'd like to end the warranty tour with snapshots of two relative newcomers to the charts. Goodman Global was for many years owned by Harold Goodman and his family, until it was sold to investors in 2004 and went public in 2005. So it didn't begin reporting its warranty figures until early 2006.

Jarden Corp. acquired its way into the warranty business by buying such brands as Sunbeam, Coleman, Mr. Coffee, Oster, and First Alert. It first began reporting its warranty expenditures in early 2005, after the acquisition of American Household Inc., the parent of those brands.

Historical Data Provided

The reason we have four years of data for Goodman in Figure 8 and only two years of data for Jarden in Figure 9 is simple. Goodman was kind enough to include historical data for years that they were not required to report, while Jarden started fresh and reported nothing older than the Jan. 24, 2005 acquisition.

So what we did with Goodman's data was chop it up like Black & Decker. The difference is that since Goodman never reported its quarterly revenue for 2003 or 2004, we had to also chop those annual figures into four equal slices. In Figure 8, therefore, the only accurate data is for the year 2006. Everything for 2003-2005 is derived from estimates. We do believe, however, that Goodman has been steadily cutting its warranty expenditures from the 3% level in years past to the 2% level now.

Figure 8
Goodman Global Inc.
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

Goodman claims and accruals

Jarden, meanwhile, has seen its claims rate jump from the 3% level in 2005 to over 5% in early 2006. As with Helen of Troy, this shouldn't happen in a company that has its manufacturing quality under control. And if this is the first mention of those spikes in a publication anywhere, then perhaps manufacturers should replace some of the boilerplate "we make estimates and adjust them when we have to" language that passes for explanations of their warranty management methodologies.

Figure 9
Jarden Corp.
Warranty Claims & Accruals, 2003 to 2006
(in $m and % of Product Sales)

Jarden claims and accruals

We started this annual tour back on April 3 with a series of Top Ten lists that highlighted some of the biggest annual changes among the 800 or so manufacturers we track. Since then, we've visited the automotive, computer, semiconductor, new home, and consumer electronic segments of the warranty-providing landscape. And we covered the others as part of an all-inclusive snapshot in the April 11 issue.

Did you miss any? They're all online for easy browsing. Are there any segments, product types, or markets we missed? Please make your suggestions to the editor. Two of the segments we spotlighted in this round were in fact the suggestions of readers.

Back to Part Seven    

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This Week’s Warranty Week Headlines

Homeserve in takeover talks with UK extended warranty administrator Domestic & General.
The Independent, May 22, 2007
4CS opens offices in England and Australia in push to expand into Europe and Asia/Pacific.
Press Release, May 22, 2007
Embraer E-170 & E-190 jet cargo door locking problem to be fixed under warranty.
Flight International, May 22, 2007
Exactmobile Phones in Johannesburg closes after Nokia changed warranty repair policies.
African News Dimension, May 22, 2007
Warranties don't cover damage to electronics from beach sand or water, columnist warns.
Associated Press, May 22, 2007

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Mize Warranty Connect


Warranty Headlines (cont’d)

NEC's IT/Network Solutions Division operating profit drops after 13 billion yen warranty charge.
AFX News, May 21, 2007
Elan Home Systems to waive all "no trouble found" service fees & speed up warranty repairs.
Custom Retailer, May 21, 2007
Public Works Minister gives 150-year warranty on Malaysia's recently refurbished Parliament House.
New Straits Times, May 21, 2007
Extended warranty dealers evade Short Term Insurance Act rules in South Africa by renaming sales commissions.
South African Insurance Times & Investment News, May 20, 2007
Nokia opens its 24th customer care center in Bangladesh.
Daily Star, May 19, 2007

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ServiceBench for Service Administrators


Warranty Headlines (cont’d)

N.E.W. Customer Service Companies recognized for call center excellence for third year in a row.
J.D. Power press release, May 17, 2007
In bid for better care, Geisinger Health System offers surgery with a warranty.
New York Times, May 17, 2007
Lawyer who sued Honda for incorrect odometers now threatens Nissan with similar action.
WISH-TV Indianapolis, May 17, 2007
Canon, Epson, and Lexmark say using another company's ink cartridge or refills does not automatically void your warranty.
PC World Canada, May 17, 2007
Office Depot says customer failed to register extended warranty on her laptop.
WSOC-TV Charlotte, May 17, 2007

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Warranty Headlines (cont’d)

Misspelled sign for refurbished Virginia statehouse to be replaced under warranty.
Richmond Times-Dispatch, May 17, 2007
DCX board approves Chrysler sale to Cerberus Capital Management for $7.4 billion.
Detroit Free Press, May 16, 2007
N.Y. attorney general sues Dell, alleging fraud, false advertising and deceptive practices.
Associated Press, May 15, 2007
Saturn ads say "Rethink American," tout longer powertrain warranties.
AdWeek, May 15, 2007
MaintenanceNet Inc. launches new service contract management portal for government solution provider.
Press Release, May 15, 2007

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After Warranty Analytics


Warranty Headlines (cont’d)

Kia combines inexpensive cars and a long warranty to lure former VW buyers.
BrandWeek, May 14, 2007
Wedding warranty? Insurance policies can now cover everything from hurricanes to cold feet.
Associated Press, May 14, 2007
White box PC buyers should ask the dealer who will warranty the components in their system.
Small Business Computing, May 14, 2007
CompUSA says customer abuse damaged laptop, but Toshiba finds room for a compromise settlement.
Buffalo News, May 13, 2007
Sweepstakes Clearinghouse to replace customer's defective computer as a goodwill gesture.
Louisville Courier-Journal, May 13, 2007

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Warranty Headlines (cont’d)

Warranty should be a factor when deciding on a retailer for electronics or computer purchases.
Toronto Star, May 12, 2007
Attorney Paul Wojcicki launches as a forum to discuss warranty law.
Welcome Message, May 11, 2007
HP launches remote tech support service Instant Care globally in nine languages for PCs, cameras, TVs and printers.
Press Release, May 11, 2007
Chrysler recalls minivans to fix corroded airbag sensors in states that use road salt heavily.
Reuters, May 11, 2007
SEC wrapping up 2-1/2-year investigation of GM's relationship and transactions with Delphi.
Detroit News, May 10, 2007

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Warranty Headlines (cont’d)

Businesswoman wins lawsuit against Isuzu over commercial use exclusions in its warranty.
KAIT-TV Jonesboro, May 11, 2007
Housing Minister in Sabah, Malaysia proposes longer statutory warranties on new homes.
Bernama, May 11, 2007
Survey finds warranty is top priority for Malaysian buyers of second-hand IT equipment.
Computerworld Malaysia, May 2007
Diebold Inc. gets SEC subpoena in probe of service contracts and recognized revenue practices.
Associated Press, May 10, 2007
Dell tells editor's daughter in college to re-install Windows rather than replace the hard drive.
InfoWorld, May 10, 2007
Consumer Electronic Lemon Law advances in New Jersey Assembly Consumer Affairs Committee.
Politics NJ, May 10, 2007
UK Home Office sees higher costs for biometric passports; warranty remains at two years.
IT Pro, May 10, 2007
ThermoGenesis says lower margins due to cost of design improvements, product testing, and warranty claims.
Sacramento Business Journal, May 10, 2007
Onex Corp. revenue up 37% but net earnings fall 78%
Press Release, May 10, 2007
Forestry Division of Blount Inc. deploys 4CS iWarranty software.
Press Release, May 9, 2007
Toyota profits fall 2.8%, caused by increased sales costs and "the early booking of spending on warranty reserves."
Reuters, May 9, 2007
Gateway E-475M and E-265M notebooks feature three-year warranties.
Press Release, May 9, 2007
Director of says a lifetime warranty is only as good as the people who back it.
Press Release, May 9, 2007
SEC makes LCA-Vision Inc. restate results to change revenue recognition for extended warranties.
Press Release, May 8, 2007
Consumer Reports survey finds customers prefer retailers' tech support services to manufacturers' own.
Press Release, May 8, 2007
AMR Research says 25% of U.S. manufacturers to move some production overseas if current conditions persist.
Press Release, May 8, 2007
Electronics Boutique Holdings Corp. settles service plan sales tax class action lawsuit.
Press Release, May 8, 2007
Microsoft's Peter Moore can't comment on Xbox 360 failure rates being higher than 3%.
San Jose Mercury News, May 7, 2007
IBM's one-country-only product warranties impede its global sales strategy.
CRN, May 7, 2007
Salesman takes $10 off price of DVD player if customer buys extended warranty for $10.
Washington Post, May 6, 2007
Responding to lawsuit, Carrier says warranty repair rate for secondary heat exchangers is under 0.5%
Press Release, May 4, 2007
Fort Worth Better Business Bureau fields puppy warranty complaints against
Fort Worth Star-Telegram, May 4, 2007
High Tech Pet agrees to investigate outstanding warranty claims and either repair or refund purchases.
Consumer Affairs, May 3, 2007
Navistar files counter-suit against Ford, seeks $2 billion in damages.
Associated Press, May 3, 2007
Soldertec Global launches audit service to test compliance with RoHS.
Press Release, May 3, 2007
AA Warranty hires Golley Slater PR to promote the launch of its extended warranty service in the UK.
How Do, May 3, 2007
Demand for longer battery life leads to safety disasters, such as the Sony battery recall in 2006.
CNET, May 2, 2007
GM North America VP touts turnaround, says longer warranties provide more value to his customers.
The Crescent News, May 2, 2007
Modine Manufacturing blames fourth quarter loss in part on higher warranty costs.
Business Journal of Milwaukee, May 2, 2007
Six Sigma projects improve quality, reduce warranty costs and increase customer satisfaction.
Disclosures magazine, May 1, 2007
Anyware Computer Accessories lengthens warranty on TP-Link networking gear to three years.
Computerworld Australia, May 1, 2007
Ricoh offers two-year on-site warranties on new gel-based color printers.
IT Week, May 1, 2007
New bathrooms at Tallil Military Base in Iraq were failing even during the warranty period.
Chartered Institute of Building, May 1, 2007
Circuit City increases frequency of extended warranty pricing reviews from quarterly to monthly.
Dealerscope, May 1, 2007
Netgear ProSafe networking solutions now carry a lifetime hardware warranty.
Press Release, May 1, 2007
Colorado lobbyists accused of making false claims about a tax hike to oppose home warranty bill.
Denver Post, May 1, 2007
Reuters to acquire ClearForest Ltd., makers of text analytics software.
Press Release, April 30, 2007
All Subaru Tribeca 4x4s sold in UK from May to July to carry promotional five-year warranty.
What Car? April 30, 2007
Apple Inc. says some MacBook batteries may have performance problems and need replacing.
Reuters, April 30, 2007
IBM business partners say lack of international warranties impedes their global growth.
CRN, April 30, 2007
MyThings Web site records serial numbers and purchase dates, smoothing warranty claims.
New York Times, April 30, 2007
New York's MTA won't fix some of its own failure-prone elevators for fear of voiding warranties.
New York Sun, April 30, 2007
All Mazdas sold by Towell Auto Centre in Oman this summer get promotional five-year warranty.
Press Release, April 29, 2007
Homebuilder sues RipOffReport and Google for posting negative comments about his business.
Newark Star-Ledger, April 27, 2007
Tidewater Builders Association's home warranties have loss ratio of 5%, vs. 40% for competitor.
Hampton Roads Virginian-Pilot, April 29, 2007
Mustang Shelby Super Snake engine can be tuned up to 725 horsepower, but that voids the warranty.
Motor Trend, April 27, 2007
JP Morgan analyst sees lower warranty costs at Ford North America during first quarter.
Reuters, April 26, 2007
Monaco Coach says quality improvements helped it cut warranty expense in the first quarter.
Press Release, April 26, 2007
Microsoft reports increased Xbox 360 console warranty expenses; division's losses continue.
Ars Technica, April 26, 2007
BorgWarner profit falls 5% after first quarter warranty charge.
Associated Press, April 26, 2007
Fujitsu Siemens Computers opens new call center in the UAE.
Press Release, April 26, 2007
New Staten Island Ferry boats have generator and cooling system problems, but they're covered under warranty.
WABC-TV New York, April 26, 2007
Jim Moran, automotive pioneer and founder of JM Family Enterprises, dies at age 88.
Press Release, April 24, 2007
Lennox International reports lower profits, higher parts costs, increased warranty costs.
Press Release, April 24, 2007

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