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Worldwide Heavy Equipment Warranty Report:

In 2023, the worldwide heavy equipment industry paid $4.6 billion in warranty claims, and set aside $6.6 billion in warranty accruals. The average claims rate was 1.17%, and the average accrual rate was 1.4%.

While the warranties issued for passenger cars and light trucks get all the attention, there is a huge warranty chain management operation on the commercial side, for the heavy equipment used in industries including construction, agriculture, and mining.

We're tracking the top 57 heavy equipment manufacturers worldwide, of which 23 include their warranty expense figures in their annual reports. Together, we estimate, these 23 OEMs accounted for about 83% of the worldwide heavy equipment industry's warranty expenses last year. So it's relatively easy to fashion estimates for the remaining 17%, and to create a report on their global warranty expenses.

Worldwide Auto Warranty Report:

In 2023, the global automotive manufacturers paid $51 billion in warranty claims, with an average claims rate of 1.98%, and set aside $65 billion in warranty accruals, with an average accrual rate of 2.52%. At the end of 2023, the worldwide automakers held a total of $140 billion in warranty reserves.

In 2023, the global automotive industry saw significant increases in three of our five key warranty metrics: claims paid, accruals made, and reserves held. Global automotive product warranty claims paid and accruals made both grew by 17% from 2022 to 2023, while warranty reserves held by global automotive manufacturers increased by 14%. At the same time, the industry average claims and accrual rates increased only slightly, meaning vehicle sales revenue grew parallel to increases in warranty costs.

Warranty Week tracks the warranty expenses of 34 major automotive manufacturers around the world, which report some or all of their warranty metrics to investors in their annual reports. Most report the amount they pay in claims, the amount of accruals they make, and the end-balance of the warranty reserve fund.

Twenty-first Annual Product Warranty Report:

Total warranty claims, accruals, and reserves increased among the U.S.-based manufacturers during 2023. Inflation has driven up the price of everything, including warranty work, but we see clear delineations among industry sectors. The vehicle and building trades sectors are seeing warranty costs grow, while the high tech sector is seeing a decline.

All but a small handful of late reporters have published their 2023 annual reports. In March, we presented the Top 100 Warranty Providers of 2023, and some information about the biggest increases and reductions in the warranty claims rates, accrual rates, and reserve balances among those largest manufacturers.

This week, we're presenting our Twenty-first Annual Product Warranty Report, based on the detailed warranty expense information we've been gathering since 2003. This year, we increased the number of companies included in this report, including many manufacturers that are new to reporting their warranty expenses. This year's report includes data from over 1,400 manufacturers that have reported product warranty expenses over the past two decades.

World's Largest Warranty Problems:

On the one hand, U.S.-based manufacturers are required to disclose their warranty expenses to investors. On the other hand, they try their best to obscure the news and bury it in plain sight when something really expensive happens. But as the saying goes, a picture's worth a thousand words. And in the charts that follow, it's hard to hide a billion-dollar warranty problem.

Over the past few years, every once in a while, a set of warranty expense numbers comes in that makes us wonder if there's been a typographical error in a company's annual report. Suddenly, there's a billion-dollar warranty expense and there's no explanation at all anywhere in the document.

Other times, a major safety recall or some other big event makes the news, and inevitably it gets reduced into a major escalation in a company's warranty expenses. For these, we don't need any additional explanations, but we never do find out exactly how much it costs.

Warranty Expenses When Conglomerates Break Up:

In early 2020, two diversified companies spun off product lines to become "pure plays" in specific industries. And now, seven quarters later, the warranty expense metrics of the five new companies, which were previously blended together, have diverged in very distinct ways.

After news broke last month about the plans of General Electric Company and Johnson & Johnson to break themselves into three and two companies, respectively, it made us recall the break-ups of last year, when United Technologies Corp. and Ingersoll-Rand plc reorganized themselves into three and two units.

As we wrote about in the May 28, 2020 newsletter, our main interest in the break-ups of these conglomerates was how their subsequent financial statements would allow us to get a much clearer view of their warranty expenses, since the aerospace claims and accruals would no longer be blended with those of the air conditioning or industrial/building products lines of business. And now, with nearly two years of separate data in hand, that clearer picture has emerged.

The A-Team of Extended Warranties:

Ten companies, whose names all begin with the letter A, control at least 57% of the $40 billion U.S.-based and consumer-facing service contract industry. Most are administrators and/or underwriters of the protection plans, but a few are electronics manufacturers and/or retailers.

Extended warranties are a huge business in the U.S. Last year, consumers spent an estimated $17 billion on vehicle service contracts, and roughly $23 billion on protection plans for their appliances, electronics, computers, and mobile phones.

A huge chunk of that money is going to the people that sell them: the dealers and retailers who collect very healthy sales commissions and move on. But the rest is going to a long list of service contract administrators and insurance underwriters who seem to retain the risk and do all the work.

Consumer Reports' 2006 Extended Warranty Ad:

There was panic in the industry when one of the most trusted consumer advocates told its readers not to buy extended warranties. Ten years later, the magazine's advice is almost forgotten, and the industry is bigger than ever.

In a few weeks we'll be marking a very important anniversary in the service contract industry. Just as the holiday shopping season of 2006 was getting under way, a major consumer product ratings publisher told shoppers that extended warranties were a waste of money. On Tuesday morning, November 14, 2006, the USA Today newspaper carried on the back page of the "Money" section (page 10B), the following full-page ad placed by Consumer Reports magazine:


Figure 0


Reaction was swift. Some said both the frequency of breakdowns and the average cost of repair was higher than Consumer Reports was calculating, making service contracts a better value than was admitted. Others said it was simply a matter of price, in that nobody would deny the value of a service contract priced at 0% of the product's price (in other words, free).

VW's Emissions Warranty Scandal:

Some students cheat on tests. But companies rarely do, because the cost of getting caught is very high. And in the long run, someone usually snitches. So isn't it ironic that a bunch of students caught one of the world's largest manufacturers cheating on a test?

At Volkswagen AG, the world's largest passenger car manufacturer, and the world's largest warranty provider, with some of the industry's highest warranty expense rates, things just went from bad to worst. The company, which spent 7 billion euro (US$7.9 billion) last year on warranty claims, could end up paying an additional US$3.6 billion in claims and fines to fix a major problem with almost half a million diesel cars that have been found to be illegally polluting the air.

It all started last May, when the International Council on Clean Transportation, a small nonprofit organization focused on the reduction of vehicle emissions, and a research team at the Center for Alternative Fuels Engines and Emissions within West Virginia University, documented the discrepancy between test levels and real world nitrogen oxide (NOx) emissions levels from new passenger cars equipped with diesel engines.

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