Executive Briefings

Automotive Suppliers Draw the Short Straws on Warranty Collaboration

Vehicle quality has improved to the point where it's less of a key differentiator in purchasing decisions. But claims and recalls still plague automakers and impact their bottom line. For example, Warranty Week estimates GM accrues $548 per vehicle per annum, based on the company accruing a total of $5.14B for warranty in 2007, with sales of 9.37 million vehicles worldwide. Compare this against Toyota at $439 and Honda $287 per vehicle. For most automakers, accrual considers multiple variables, including warranty duration, product quality, local service and repair costs, and total number of warranties to expire on mileage before their time is up.

AMR Research also finds the distribution of warranty costs to suppliers is uneven. While some automakers slap a charge on their suppliers based on a simple allocation, with no negotiation or consideration for quality and performance, others take a more progressive, collaborative approach and calculate the charge based on results of sampling for quality.

The dissemination of information to improve product quality and decrease warranty exposure is even worse. Our clients tell us better collaboration across the board is needed between OEM and suppliers. A BearingPoint warranty study validates this, showing suppliers are clamoring for it more than their OEM counterparts. Resolution will ultimately come down to organizational (people and processes) realignment supported by technology. But in the meantime, here are three problem areas to address to assuage the warranty gap.

Problem No. 1--Who actually owns warranty?
Problem No. 2--Lack of collaboration
Problem No. 3--Lack of clearly-defined processes and supporting systems
AMR Research

Vehicle quality has improved to the point where it's less of a key differentiator in purchasing decisions. But claims and recalls still plague automakers and impact their bottom line. For example, Warranty Week estimates GM accrues $548 per vehicle per annum, based on the company accruing a total of $5.14B for warranty in 2007, with sales of 9.37 million vehicles worldwide. Compare this against Toyota at $439 and Honda $287 per vehicle. For most automakers, accrual considers multiple variables, including warranty duration, product quality, local service and repair costs, and total number of warranties to expire on mileage before their time is up.

AMR Research also finds the distribution of warranty costs to suppliers is uneven. While some automakers slap a charge on their suppliers based on a simple allocation, with no negotiation or consideration for quality and performance, others take a more progressive, collaborative approach and calculate the charge based on results of sampling for quality.

The dissemination of information to improve product quality and decrease warranty exposure is even worse. Our clients tell us better collaboration across the board is needed between OEM and suppliers. A BearingPoint warranty study validates this, showing suppliers are clamoring for it more than their OEM counterparts. Resolution will ultimately come down to organizational (people and processes) realignment supported by technology. But in the meantime, here are three problem areas to address to assuage the warranty gap.

Problem No. 1--Who actually owns warranty?
Problem No. 2--Lack of collaboration
Problem No. 3--Lack of clearly-defined processes and supporting systems
AMR Research