February 9, 2023
sponsored by Tavant
ISSN 1550-9214         

Largest Nine-Month Warranty Expense Rate Changes:

While we can't directly compare one company's expense rates to another's, we can compare each company against their year-ago levels. And then we can compare the size of the changes, to reveal which companies are seeing costs fall and which are seeing them soar.

For the past few editions of Warranty Week, we've been looking at the nine-month warranty data for United States-based manufacturers in key industries, while awaiting the release of the 2022 annual reports in the coming months. While those publicly trading in the U.S. are required to release financial statements each quarter, international companies usually only report their data once per year. This week, rather than honing in on a specific industry, we are taking a broader look at claims and accruals data for all of the U.S.-based companies we track.

First we gathered all of the 2021 and 2022 expense reports for the several hundred U.S.-based companies we track. We recorded four key figures: claims paid, accruals held, reserves held, and total product revenue. This week, we will focus on claims and accruals, and we will take a look at warranty reserves next week.

Then we narrowed down the list to just 110 companies that paid $10 million or more in claims during the first nine months of 2022, and who reported both claims and accruals amounts in their first, second, and third quarter expense reports. This excluded all companies that report their warranty expenses only once a year, all companies that missed filing one or more reports, and all companies that reported just the opening and closing balances in their warranty reserve funds without detailing the amount of claims paid or accruals made. In a handful of cases, certain companies reported making $0 accruals or paying $0 in claims, but at least they reported those amounts.

We calculated the expense rates using the relevant claims and accrual totals divided by product revenue totals (claims / product revenue and accruals / product revenue). These were calculated for the periods ending September 30 of 2021 and 2022 -- or, for those companies on different fiscal year schedules, for the quarters ending immediately before those dates, but not before June 30. While you can't compare companies, especially when they report their data differently, you can compare them to themselves a year prior.

Each company's 2022 expense rates were compared to those from 2021, to reveal the biggest increases and decreases. In the four tables that follow, we are listing the 10 biggest percentage gainers and decliners for the claims rate (Fig. 1 & 2) and accrual rate (Fig. 3 & 4).

Of the top 110 companies, a total of 24 made one appearance on any of the four tables below. Eight companies made the theoretical maximum of two appearances. And then 78 of the 110, almost three-fourths of the list, made no appearances at all, meaning that neither of their warranty expense rates changed by much since 2021.

The companies that made the maximum of two appearances on these lists are Boeing Co., Daktronics Inc., Herman Miller Inc., Hubbell Inc., MKS Instruments Inc., Nvidia Corp., Oshkosh Corp., and Taylor Morrison Home Corp..

Multiple appearances, as we will see, can be good or bad, depending on whether the metrics are rising or falling. To make it onto any list at all, one of a company's expense rates had to change significantly: by at least 28% for claims paid, and at least 38% for accruals made. Only 32 out of the top 110 did this.

The 24 companies that made into just one of the next four lists are A.O. Smith Corp., American Woodmark Corp., Aptiv PLC, CommScope Holding Co. Inc., Cummins Inc., Dana Inc., Enphase Energy Inc., First Solar Inc., Generac Holdings Inc., General Motors Co., IBM Corp., Infinera Corp., Insulet Corp., iRobot Corp., Juniper Networks Inc., Meritor Inc., Polaris Inc., Seagate Technology Holdings PLC, SunPower Corp., Tenneco Inc., Terex Corp., Toll Brothers Inc., Visteon Corp., and Western Digital Corp.

Basically, these are the companies showing the most warranty pain or gain. Figures 1 and 3 contain the most improved, while Figures 2 and 4 contain the top warranty cost increases. But keep in mind that those are not all caused by surges in defects. Some relate to mergers and acquisitions, which in and of themselves can raise warranty costs.

However, among the top 110 warranty providers, especially among the very largest, these warranty metrics tend not to change that much from one year to the next. For them, claims remain under control and accruals remain proportional to sales. In fact, General Motors, Cummins, and Boeing were the only three of the top 20 largest warranty providers to make appearances on this list, and the first two were for massive reductions in their accrual rates (good news).

But then there is a subset for which the numbers increase by astronomical factors; tripling, quadrupling, quintupling, and, in some cases, as much as thirteenfold and seventeenfold. This reflects real pain, and big unanticipated expenses.

So these are the members of the following four top 10 lists: the biggest changes in expense rates since 2021. Everything can change in a few months when the fourth quarter and annual numbers come in, but these are the numbers as of right now.

Warranty Claims Rates

Let's begin with some good news. In Figure 1 we list the top 10 claims rate reductions for the first nine months of 2022.

Figure 1
Top 110 U.S.-based Warranty Providers:
Top Ten Claims Rate Reductions,
First 9 Mo. 2022 vs. First 9 Mo. 2021
(claims as a % of product sales)


Figure 1

At the top of the list is the new home construction company Taylor Morrison, which reduced its claims rate by about five-sixths, from 1.1% to just 0.2%. We will note that they acquired William Lyon Homes in February 2020, possibly helping to explain their higher claims rate the next year.

Next is Oshkosh Corp., which cut its claims rate by about two-thirds, from 0.84% to 0.26%. We visualized this change in Figure 3 of last week's report on truck and powertrain warranty trends. They are followed by Visteon, which cut its rate in half from 0.8% to 0.4%.

At the bottom of the list are Herman Miller, Aptiv, MKS Instruments, and Terex, all of which decreased their claims rates by just about one-third. Four of the 10 companies on this list also appear on the list of biggest accrual decreases in Figure 3: Taylor Morrison, Oshkosh, Herman Miller, and MKS Instruments, meaning 2022 was a great year for them. Appearing on this list is great news for these 10 companies, sure to be welcome by both management and investors.

Overall, it was a good year for our top U.S.-based warranty payers, with 61 of the 110 managing to cut their claims rates, while 49 saw their claims rise. In Figure 2, we will look at the top 10 companies that saw their claims rise the most.

Figure 2
Top 110 U.S.-based Warranty Providers:
Top Ten Claims Rate Increases,
First 9 Mo. 2022 vs. First 9 Mo. 2021
(claims as a % of product sales)


Figure 2

At the top of the list is the scoreboard and LED display maker Daktronics, which saw its claims rate almost sextuple between 2021 and 2022, from 1% to 5.9%. Next is Nvidia Corp., which saw its claims rate quadruple, though this increase was just from 0% to 0.1%.

The other two companies on this list that saw their claims rate more than double are First Solar, which increased from 0.2% to 0.5%, and Western Digital, which increased from 0.45% to 0.91%. Next is Generac Holdings, which increased by more than four-fifths, from 1.1% to 2.1%. Generac acquired Ecobee Inc. at the end of 2021, perhaps explaining their increase in claims payments in the subsequent year.

At the bottom of this list, increasing by a little less than half, are Boeing, A.O. Smith, and Hubbell. Note that Hubbell acquired two companies in 2022, PCX and Ripley Tools, helping to explain their big increase in claims paid last year.

Similar to the trend we noted for Figures 1 and 3, four of these 10 companies in Figure 2 also appear in Figure 4, the list of the biggest accrual rate increases. Before we look at those data, we will take a look at the best news of all: the ten biggest accrual rate decreases between 2021 and 2022.

Warranty Accrual Rates

In Figure 3, we celebrate the companies that cut their accrual rates the most. These numbers are particularly important because each company chooses how much money to accrue based on what they anticipate spending on warranty claims in the future. Lower accruals means more profits and savings for these companies.

Figure 3
Top 110 U.S.-based Warranty Providers:
Top Ten Accrual Rate Reductions,
First 9 Mo. 2022 vs. First 9 Mo. 2021
(accruals as a % of product sales)


Figure 3

Leading the pack is Tenneco, which decreased its accruals rate from 0.18% to just 0.02% from 2021 to 2022. Next on the list is Taylor Morrison, one of the four companies also found on the list of biggest claims decreases (Figure 1). They made a big jump, from 1.1% to just 0.13%. As we saw in Figure 5 of our Nine-Month New Home Warranty Report a few weeks ago, Taylor Morrison has had huge fluctuations in its warranty accruals, especially in the past few years. They might be exhibiting a pattern of making huge accruals one quarter, and then reducing their accruals the next, rather than staying consistent. Nevertheless, congratulations are in order.

Next on the list is General Motors, which had a three-fourths reduction in its accrual rate from 6.8% to 1.8%. This shows a great recovery after its big spike in accruals last year, in response to a huge recall of 2021 SUVs, which we also noted two weeks ago in our report on car and RV warranty trends.

CommScope's accrual rate dropped by about half, from 0.46% to 0.24%. Perhaps these lower costs are associated with the separation of its Home Networks business, a decision they announced in 2021 with the goal of "reduc[ing] operating costs throughout the company." Undoubtedly, establishing what may have been one of the costlier elements of the business as an independent company is an effective strategy to cut expenses.

Oshkosh, Herman Miller, and MKS Instruments are the three other companies that find themselves both on this list and in Figure 1. They all saw their accruals rates decrease by about two-fifths, as did iRobot, Juniper Networks, and Cummins. Cummins finds itself on this list after several quarters with significant accruals in the past five years due to issues with some older diesel engines failing U.S. Environmental Protection Agency (EPA) and California Air Resources Board (CARB) standards. However, we note that Cummins acquired Meritor, another powertrain company, in August 2022, right at the end of the window of our data. Meritor makes an appearance in Figure 4, with some bad news about increased accruals. It will be interesting to see if anything changes next year as a result of this.

The Pain Chart

Now for the bad news. Figure 4 is the chart that no company wants to be a part of. While claims are something that happen to a company, accruals are something a company decides to do. And accrual increases have a direct impact on net income. So when a company decides to raise its accrual rate, it does so because the accountants believe it will be necessary in order to pay claims.

Figure 4
Top 110 U.S.-based Warranty Providers:
Top Ten Accrual Rate Increases,
First 9 Mo. 2022 vs. First 9 Mo. 2021
(accruals as a % of product sales)


Figure 4

Some of these increases are on a scale that we rarely see. Nvidia, at the top of the list, increased its accruals a whopping seventeenfold, from 0.1% to 1.8%. We also saw them make an appearance in Figure 2, with the second-highest increase in claims rate. While some of this change can be explained by decreased revenue in 2022, it is unclear what the future has in store for this computer graphics processing unit (GPU) company.

Next on the list is the medical device company Insulet, increasing thirteenfold from 1.1% to 14.3% in the span of just a year. This is the result of an extra $36.8 million accrual they made in the third quarter of 2022 in response to a battery issue with one of their insulin pumps. Meanwhile the company released a new product and reported record revenue growth in 2022. They might be anticipating many of the users of this new product, or perhaps some older models, to file more warranty claims in the upcoming year. In any case, 14.3% is a really, really high accrual rate.

Next on the list is Daktronics, which saw its accrual rate quintuple from 1.5% to 7.6%. While this increase is a little smaller than the increase in its claims rate that earned it the top spot in Figure 2, it again calls the near future of the company into question.

The next companies on the list still saw big increases in the accruals rate, but at least they didn't double. Polaris is next on the list, almost doubled but not quite, from 1.4% to 2.6%. Boeing and Hubbell find themselves both here and in Figure 2, again not the best position to be in. Meritor's problems seem to be over, though, due to the merger with Cummins we mentioned above.

Rounding out the list are Enphase Energy, American Woodmark, and Toll Brothers. What's especially interesting is that when conducting research for this report, we found several of the companies on this list put out press releases reporting record earnings during 2022. On the one hand, record growth could simply mean that they anticipate that many of those new customers will come to them with warranty claims in the next few years. However, it's possible that this time next year, there will be a news story or maybe even a recall that explains these big changes. While we cannot predict the future, we can notice the patterns and big changes, point them out, and wait and see what comes next.



 

This Week’s Warranty Week Headlines

Wind turbine failure rates rise -- has the industry gone too big, too fast?
Renew Economy (AU), February 9, 2023
RJWC Powersports offers 2- & 3-yr, warranties on its exhaust systems.
PowerSports Business, February 9, 2023
Honda backup camera recall driven by over 200 warranty claims.
CNN Newsource, February 8, 2023
Audi Assurance Package offers 3-yr. warranty extension in Malaysia.
ZigWheels (MY), February 8, 2023
2-10 Home Buyers Warranty announces Builder Achievement Award winners.
Press Release, February 7, 2023
 

More Warranty Headlines below



Tavant

 

Warranty Headlines (cont’d)

My Pixel 7 Pro is shedding parts, and I’m not alone.
Android Central, February 7, 2023
Tesla Roadster launched by SpaceX celebrates five years in orbit.
Interesting Engineering, February 7, 2023
15 companies that offer lifetime warranties on their products.
Market Realist, February 7, 2023
Skoda India to sell warranty extensions for vehicles up to 8 yrs. old.
Financial Express (IN), February 7, 2023
Okinawa Autotech & Assurant offer EV powertrain warranties.
Financial Express (IN), February 6, 2023
 

More Warranty Headlines below



PCMI - Your technology partner

 

Warranty Headlines (cont’d)

Do Americans have a right to fix their own stuff?
Christian Science Monitor, February 6, 2023
Lawmakers debate bill that would create right to repair for farm equipment.
KMGH-TV Denver, February 6, 2023
State officials warn of scam home warranty letters.
KSTP-TV St Paul MN, February 6, 2023
Car warranty scams will be in the top five this year, expert says.
CNBC, February 4, 2023
Motolite seeks to replace paper warranty cards with online registrations.
Manila Bulletin (PH), February 4, 2023
 

More Warranty Headlines below



After QuickCover

 

Warranty Headlines (cont’d)

Colorado bill would likely raise labor rates for warranty work.
AutomoBlog, February 3, 2023
Ford CEO Jim Farley's frustration builds as he vows to transform the automaker.
CNBC, February 3, 2023
Siemens Gamesa net loss driven by higher-than-expected warranty costs.
Reuters, February 2, 2023
Reynolds and Reynolds acquires American Guardian Warranty Services.
SubPrime Auto Finance News, February 1, 2023
Love's Travel Stops to perform warranty work for Freightliner vehicles.
NACS Daily News, February 1, 2023
 

More Warranty Headlines below



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


 

Warranty Headlines (cont’d)

Jeep offers warranty extension in possible class action settlement.
Kelley Blue Book, February 1, 2023
Beynon Track Co. settles defective track lawsuit with school district.
St. Joseph News-Press (MO), February 1, 2023
Husqvarna offers 2-yr. warranty to commercial chainsaw & mower customers.
Press Release, January 31, 2023
CloudCover offers $1 million Ransomware Warranty insured by Munich Re.
Press Release, January 31, 2023
Cyber claims specialist welcomes Arkose Labs credential stuffing warranty.
Insurance Business Australia, January 31, 2023
 

More Warranty Headlines below



sponsored by Tavant

 

Warranty Headlines (cont’d)

Longi lengthens rooftop solar module warranty to 25 years in AU & NZ.
PV Magazine Australia, January 31, 2023
RV Fixed Operations Certification Week set for March 5-11.
RV Business, January 31, 2023
Maverick launches risk management platform for homebuilders.
Press Release, January 31, 2023
How home warranties are regulated.
MarketWatch Guides Home Team, January 31, 2023
Digitec shares data on graphics cards sold and returned under warranty.
VideoCardz.com, January 30, 2023
Cadillac Escalade-V owner's warranty reinstated by a GM executive.
GM Authority, January 30, 2023
District Attorney warns of home warranty renewal scam.
KWCH-TV Wichita KS, January 30, 2023
Tasmanian government releases home warranty scheme draft legislation.
Insurance News (AU), January 30, 2023
Samsung offers 20-yr. warranty on digital inverter-driven appliances.
New Age Business (BD), January 28, 2023
Vestas blames high warranty costs for heavy losses in 2022.
Windpower Monthly, January 27, 2023
America's Preferred Home Warranty named a finalist today in the Stevie Awards.
Press Release, January 27, 2023
American Home Shield says Utah has the largest single-family homes.
Money Talks News, January 27, 2023
Waterfall and Atalaya support OnPoint's acquisition of Guardian.
ABF Journal, January 26, 2023
GE Renewable Energy partially blames warranty costs for $2.2 billion annual loss.
Renewables Now, January 26, 2023
Do you know the difference between a home warranty and home insurance?
WKBW-TV Buffalo, January 26, 2023
 

More Warranty Headlines