May 7, 2009
sponsored by Tavant
ISSN 1550-9214         

Annual Warranty Totals & Averages:

While claims were up slightly in 2008, both warranty reserves and accruals actually plunged last year. And as sales fall, the percentage of product revenue spent on claims has risen. With no less than 21 charts, we detail the industry totals and averages for the past six years.

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.

Figure 1
Worldwide Warranty Claims of U.S.-based Companies
(claims paid in US$ millions, 2003-2008)

Figure 1


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%).

Figure 2
All U.S.-based Companies
Average Warranty Claims & Accrual Rates
(as a percentage of product sales, 2003-2008)

Figure 2

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

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.

Figure 3
All U.S. Manufacturers
Claims Paid per Industry, 2008
(as a % of $28.7 billion total)

Figure 3


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.

Figure 4
Warranty Claims in Automotive & Aerospace
Worldwide Claims Paid by U.S.-based Companies
(claims paid in US$ millions, 2003-2008)

Figure 4

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.

Figure 5
Warranty Claims in the High-Tech Industries
Worldwide Claims Paid by U.S.-based Companies
(claims paid in US$ millions, 2003-2008)

Figure 5

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?

Figure 6
Warranty Claims in the Building Trades
Worldwide Claims Paid by U.S.-based Companies
(claims paid in US$ millions, 2003-2008)

Figure 6

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.

Go to Part One
Go to Part Two
Go to Part Three
Go to Part Four
Go to Part Five
Go to Part Six
Go to Part Seven
This is Part Eight
Go to Part Nine



This Week’s Warranty Week Headlines

Manufacturers deploy new technologies and processes to help them reduce warranty claims.
Managing Automation, May 6, 2009
Chrysler went into bankruptcy last week with about $660 million of cash on hand.
Detroit Free Press, May 5, 2009
Indiana attorney general sues Fortress Secured, SVM and Mike Moneymaker for warranty robocalls.
Press Release, May 5, 2009
Bankruptcy Judge Arthur Gonzalez to rule on paying Chrysler dealers for warranty work.
Detroit Free Press, May 4, 2009
Stop the phone phonies: Feds must disconnect car-warranty scamsters.
New York Daily News, May 4, 2009

More Warranty Headlines below

Mize Warranty Connect


Warranty Headlines (cont’d)

Former auto dealer Michael Holley jailed for allegedly stealing extended warranty premiums.
Lakeland (FL) Ledger, May 4, 2009
Cisco expands coverage for Catalyst 3000-E and 4500 switches from 90 days to lifetime warranty.
Channel Web, May 4, 2009
Sigma Corp. lengthens warranty on all non-EX lenses sold by U.S. dealers from one to three years.
Press Release, May 4, 2009
Gulf Warranties launches extended warranty program for electronics, appliances and telecom.
AME Info, May 2, 2009
Chrysler enters Chapter 11, but will it ever come out?
USA Today, May 1, 2009

More Warranty Headlines below

PCMI - Your technology partner


Warranty Headlines (cont’d)

Chrysler dealerships put hope in government backing of warranties.
Detroit News, May 1, 2009
Commentary: Not even Obama knows the way Chapter 11 wind blows.
Detroit News, May 1, 2009
What Chrysler's Chapter 11 filing means.
Associated Press, April 30, 2009
A primer on a Chrysler bankruptcy and a quick look at how it is likely to play out..
New York Times, April 30, 2009
Chrysler warranties should be OK, expert says.
WBNS-TV Columbus (OH), April 30, 2009

More Warranty Headlines below

After Warranty Analytics


Warranty Headlines (cont’d)

Remarks by President Barack Obama on the Chrysler bankruptcy filing.
Press Release, April 30, 2009
Joint statement by US President Obama and Canadian Prime Minister Harper on Chrysler.
Press Release, April 30, 2009
Chrysler factories in U.S. & Canada to shutter when parts run out.
Financial Post, April 30, 2009
Text of Chrysler CEO Robert Nardelli's email message to employees.
Associated Press, April 30, 2009
SsangYong UK gives all models transferable five-year/250,000-mile powertrain warranties.
Web Page, April 30, 2009

More Warranty Headlines below

Sign up for a free subscription to Warranty Week:
     subscribe     change of address     unsubscribe


Warranty Headlines (cont’d)

GM dealers retain Orrick Herrington & Sutcliffe LLP; Chrysler dealers retain Arnold & Porter LLP.
Wall Street Journal, April 29, 2009
Court rules drivers can sue shops for double the cost of unapproved repairs plus attorneysÂ’ fees.
Milwaukee Journal Sentinel, April 29, 2009
ShreveportÂ’s Better Business Bureau cautions against buying service contracts from U.S. Fidelis.
Shreveport Times, April 29, 2009
Auto/Mate Dealership Systems gets GM Global Warranty Management certification.
Press Release, April 29, 2009
Better warranties for most effective medical treatments could solve health crisis.
Detroit News, April 29, 2009

More Warranty Headlines below

Entigo, Founding Sponsor


Warranty Headlines (cont’d)

End of Pontiac brand name doesn't affect warranties or dealer service.
U.S. News & World Report, April 28, 2009
Verizon Wireless sues Dealers Warranty (Federal Auto Protection) & National Dealers Warranty.
Press Release, April 28, 2009
Verizon Wireless donates $50,000 proceeds from National Auto Warranty Services/U.S. Fidelis lawsuit.
Computerworld, April 28, 2009
Okla. Insurance Comm. gets temporary restraining order against VSI Vehicle Services Inc.
Insurance Journal, April 28, 2009
New York attorney general files fraud lawsuit against National Home Protection Inc.
Press Release, April 27, 2009
Indiana attorney general to take action against auto warranty telemarketers soon.
Press Release, April 27, 2009
"Your car warranty is about to expire," the woman said. "This is your final warning."
Oregonian, April 27, 2009
Texas realtors say they have seen a slight uptick in home warranty sales.
Fort Worth Business Press, April 27, 2009
LG Electronics Direct Drive steam washing machines get 10-year warranties in Qatar.
Gulf Times, April 26, 2009
Ford says timing differences in warranty payments cause egative cash flow in first quarter.
Press Release, April 24, 2009
Contractors for Bandra Worli Sea Link bridge of Mumbai can't agree on warranty duration.
International Construction Review, April 24, 2009
Dell scraps return-to-base warranty services in favor of on-premises support for small business.
Computerworld Australia, April 23, 2009
Tavant Technologies introduces per-transaction pricing for Warranty and Repair Management system.
Press Release, April 23, 2009
Missouri state insurance department sues U.S. Fidelis, demands compliance with subpoena.
St. Louis Post-Dispatch, April 23, 2009
Kleenmaid manager says the company "made all their money, through the warranties."
Current, April 23, 2009
Roadranger adds extended warranties on Spicer steer axles.
Fleet Owner, April 23, 2009
Crazy Eddie returns to electronics retail, with a new advertising campaign in the works.
Electronic House, April 22, 2009
NBC's Today Show investigates U.S. Fidelis extended warranty sales practices.
NBC Today Show video, April 22, 2009
RAC Warranty sees used car buyers opting for longer extended warranties.
Motor Trader, April 22, 2009
A.M. Best assigns B+ (Good) rating to Golden Insurance Co. RRG, captive of StrucSure.
Press Release, April 22, 2009
ServicePower signs GE Consumer & Industrial and Flextronics for scheduling system.
Press Release, April 21, 2009
LG India promises better warranty support to Computer Media Dealers Association.
CRN India, April 21, 2009
Oklahoma orders VSI Vehicles Services Inc. to cease telemarketing in the state.
Associated Press, April 20, 2009
Attensity Corp., Empolis GmbH, and Living-e AG merge to form the Attensity Group.
Press Release, April 20, 2009
Manitowoc using Esker on Demand Fax Services to automate delivery of warranty documents.
Press Release, April 20, 2009 (PDF file)
U.S. Fidelis founder Darain Atkinson did time in prison for counterfeiting and forgery.
St. Louis Post-Dispatch, April 19, 2009
New York City MTA says its contracts make it difficult to get subway escalators repaired.
AM New York, April 19, 2009
Home warranty effort once again falls short in Washington state senate.
The Olympian, April 18, 2009
EPA to consider 15% ethanol-gasoline blends, but higher mixes pose car warranty issues.
Wall Street Journal, April 17, 2009
Grays Online auction buyers get 12-month appliance warranty despite Kleenmaid's insolvency.
Illawarra Mercury, April 17, 2009
SigmaQuest announces April 30 webinar on improving the costs of quality within the supply chain.
Press Release, April 16, 2009
Sprint updates its warranty policy, drops $35 to $55 in-warranty service fees.
Phone News, April 16, 2009
Custom installers of wall-mounted flat-panel displays absorb true cost of warranty work.
CE Pro, April 16, 2009
Belkin India's surge protector product warranties to also cover connected equipment.
Channel Times, April 16, 2009
Chrysler wins $47.6 million in warranty lawsuit against supplier Hutchinson FTS.
Journal Register News Service, April 15, 2009
Canadian Trucking Alliance says biodiesel averaging rules risk voiding their warranties.
Press Release, April 15, 2009
Financial specialist explains what to look for when evaluating an extended warranty.
WKOW-TV Madison (WI), April 15, 2009
U.S. Fidelis vs. Better Business Bureau: Dueling statements on extended warranty firm.
St. Louis Post-Dispatch, April 15, 2009
Magic Investments buys the Crazy Eddie retail name and intends to bring it back!
Brand Week, April 14, 2009
Microsoft Xbox 360 warranty extended for E74 error message.
Major Nelson, April 14, 2009
Service Line Warranties sells utility line warranty protection to homeowners in West Verginia.
WBOY-TV Clarksburg WV, April 14, 2009
Avocent white paper addresses issues in tracking costs of service contract and warranty renewals.
Press Release, April 14, 2009
Report finds UN rebuilding blunders, defects and warranty issues in Afghanistan projects.
Associated Press, April 14, 2009
Asus offers warranty in India for motherboards burnt by power fluctuations.
CRN India, April 13, 2009

More Warranty Headlines