Keeping tabs on Warranty and Service Contracts Industry
Eric will be presenting on the state of Warranty and Service Contracts Industry during a webinar on Jan17th, 2019 at 1 PM EST about “Benchmark and Optimize Warranty Management” hosted by Mize, the leader in Warranty Management Software.
Mize Warranty Insights had a conversation with Eric Arnum about the warranty statistics and industry reports he has been compiling for last 15 years.
Mize Warranty Insights: You do a great job of compiling numbers for the warranty industry. Tell us more about how you put these reports together.
Eric Arnum: First I have to look through hundreds of annual reports and quarterly financial statements for the notes on warranty expenses. Then I look for the corresponding figures for warranted product sales, which means subtracting for services, licensing, consumables, and other non-warranted revenue sources. Once they’re all in the database, I can calculate claims as a percentage of sales and accruals as a percentage of sales.
Mize Warranty Insights: What are some of the key metrics you are able to get from these numbers?
Eric Arnum: Once those four metrics are all in the database, I can calculate claims as a percentage of sales and accruals as a percentage of sales. And then, by assigning each company to a single industry category, I can calculate totals for products such as cars, computers, or new homes.
Mize Warranty Insights: How long have you been publishing these reports? What are you noticing as the key trends in Warranty?
Eric Arnum: Warranty Week has been publishing these metrics since they first began to be included in financial reports in early 2003. Over the years, many large companies in Europe and Asia have also begun to include them in their financial reports, so I collect them as I find them. For the better part of the decade, the average expense rates continued to decline, from 1.8% back in 2003 to around 1.3% by 2013. But since then, the averages have bounced around within a range of 1.1% to 1.6%, with no clear trend. So I would say the trend was warranty cost reduction for a decade, followed by no clear trend for the past five years.
Mize Warranty Insights: In addition to manufacturer warranty, you also have been publishing reports on service contracts. How do you put those together even though most companies do not share those numbers publicly?
Eric Arnum: We have quite a few industry insiders reading Warranty Week, and I’m always checking our estimates against their actuals. I can never reveal the sources, but they have my thanks. In addition, some of the states that closely regulate insurance companies make them reveal their annual premium totals, so that helps as well.
Mize Warranty Insights: How can companies apply these reports and metrics to improve their warranty performance?
Eric Arnum: I think the best way to put them to use is to compare themselves to the industry they’re in, to see if their baseline is above or below average over the long term. Over the short term, there are so many problems with the timing of reimbursements from suppliers, the accounting for recall expenses, and other issues such as new product launches, acquisitions, and divestments, that it really makes more sense to look at multiple years rather than a single quarter. Also, it’s a little dangerous to compare just one company against another, because different companies might account for expenses such as call centers and parts cost in different ways. However, at the end of each year, I always compare each company against their own year-ago metrics, assuming they haven’t changed the way they account for warranty, in the hopes that there are good reasons why a given company might be up or down the most among their peers.
- Bill Pollock, President & Principal Consulting Analyst, Strategies for Growth
- Eric Arnum, Editor, Warranty Week
- Ashok Kartham, CEO, Mize