Study Says Changes Needed in Auto Warranty Process

August 3, 2005

A detailed study of the warranty processing system used by the global automotive industry has reportedly pinpointed a lack of standardization in the way warranties are handled by dealers, suppliers and original equipment manufacturers (OEMs), which leads to unnecessary costs and inaccurate information.

Moreover, new challenges from the surge of in-vehicle electronics, strategies by OEMs to shift more warranty costs to suppliers, and less-developed warranty processes in emerging nations all will present significant challenges to the industry in the near future.

The findings are detailed in a 25-page report, “The Warranty Process Flow Within the Automotive Industry,” developed by the Center for Automotive Research (CAR) and Microsoft Corp. as the first in a series of studies on automotive industry practices.

This initial study aims to improve product quality and help the industry understand how warranty data may be used to improve business operations and future products. The full report is available online at

The research, carried out by Ann Arbor, Mich.-based CAR and sponsored by Microsoft’s Automotive and Industrial Equipment Industry Solution Group in Southfield, Mich., gathered in-depth information from a highly targeted group of industry thought leaders, including executives from dealerships, suppliers and OEMs.

The research uncovered the highly variable ways of collecting and
reporting data on warranty repairs that not only were inconsistent among various manufacturers and dealers, but also resulted in internal systems that were guarded as competitive advantages. The report suggested the end results, hommence likely were higher costs for warranty repairs and a failure to capitalize fully on information obtained from these repairs to prevent component failures in the future.

As an example, the study pointed out that most respondents – even those in repair shops – felt that taking the same part or problem to five different dealers would possibly result in the failure being identified and coded differently by each shop.

This difference could even place responsibility for the failure on different suppliers, depending on how the cause was viewed. The study noted that “increasingly the traceability of parts will become a competitive advantage in the automotive industry.”

In the study, headed by Brett Smith, assistant director of manufacturing engineering and technology at CAR, industry executives declared that good mechanics are becoming very difficult to find, a factor that is becoming increasingly troublesome.

While the report noted that the process of transmitting warranty repair
information from OEM to dealer is now much more efficient through electronic and Web-based systems, a great deal of monitoring still is required as a first line of defense in identifying possible warranty problems.

When information is entered into a database, the report noted, “Each
manufacturer has developed very established and confidential internal
systems.” Moreover, those accessing the data often did not know its value to others in the organization.

“Instead of sharing information that can be vital to reducing warranty
costs, manufacturers often are protecting the data they gather,” Smith said. “One of the key findings of this study is that the warranty process often is being driven by ingenuity in going ‘around the system’ instead of revamping the ways in which data are collected and analyzed for continuous improvement.”

The method that dealers use to return parts also reportedly can hinder discovering root causes of problems.

Some, the report states, dispose of parts on-site. In other cases manufacturers or suppliers randomly select dealers to submit a limited number of parts for analysis. Components may be sent back through a parts center, a warranty processing location or directly to the supplier.

One supplier said an OEM sends it a “box of parts” with no information or explanation of the failure. This haphazard methodology is compounded by the immense volume of data to be handled.

The report estimates that the auto industry handles more than 100 million warranty claims per year, which translates to billions of warranty data fields of information annually.

“The increasing complexity of the automotive supply chain, along with the cost-control pressures of the global automotive industry, is driving the demand for better intelligence,” said Kyle Solomon, worldwide industry director of the Automotive and Industrial Equipment Industry Solution Group at Microsoft. “Microsoft and its partners are committed to extending the ways that data can be shared up and down the supply and demand chains to help ensure that information in the system can be translated to actionable steps that improve quality, reduce component failures and cut the cost of warranty

The joint CAR Microsoft report concludes, “Not only are companies
challenged to develop methods of effectively capturing and storing warranty data, but also [to] have the ability to access the information in a timely – and perhaps most important – a cost-effective way.” Available data are inconsistent and some suppliers say they need greater responsiveness from OEMs to their data requests, the study asserts.

While internal systems hamper the effective use of warranty data and
reductions in costs for the warranty process, market factors are complicating the process and raising the stakes.

* Mechanics who are used to handling electrical wiring face the very
distinct challenge of understanding electronic glitches in the quickly
spreading use of in-car electronic systems.

* OEMs are working to shift much more of the cost burden for warranty repairs to suppliers, a trend that “would likely hurt long-term warranty performance as suppliers shift resources to defend their actions instead of proactively working to resolve issues,” according to the study.

* Differing warranty systems among major global markets hold back
efficiencies, while “operations in markets with relatively undeveloped dealer networks …can not meet the same warranty standards as those in more experienced markets,” those interviewed suggest.

The report concludes that “the heart of the current process is behavioral [but] from the dealership through to the supplier, each of the interviewees had examples of how they went beyond the process ‘structure’ to obtain a better result.”

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