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.
The news broke yesterday that Mize Inc., the warranty management software firm founded by Ashok Kartham, is merging with a Swedish company called Syncron AB that specializes in aftermarket and service parts management software. Both companies are privately-held, so there were no details about the value of the transaction or the ownership structure following its conclusion.
Kartham founded Mize in 2012, taking the name from the phrase "Mobilize to Monetize." It was his second go-round at entrepreneurship, having founded the warranty management software industry when he launched 4C Solutions Inc. way back in 1995, when everybody else was using spreadsheets. Ten years ago, after building up 4CS and the warranty management software category, he sold the company to PTC, and moved to Florida, where he decidedly refused to sail off into the sunset.
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:
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).
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.
There are two big problems for warranty administrators: On the front end, it is difficult to cost-justify the amount of coding work it takes to set up small merchant accounts, and on the back end, it is difficult to change or add insurance underwriters.
PCMI, a longtime sponsor of this newsletter, aims to fix both those problems. Its Policy Claim and Reporting Solutions (PCRS) software, which has been used to administer more than 50 million extended warranties and service contracts, and to process more than 23 million claims, allows administrators to work with hundreds of small merchants and add multiple insurance underwriters.