A recent article from Warranty Week highlights a significant upward trend in warranty expenses for U.S. Original Equipment Manufacturers (OEM) in the automotive industry. This trend, observed over the past five years, is expected to continue, influenced by various factors.
Key Findings: Why Warranty Claims Expenses Are On The Rise
- Industry-Wide Impact: The automotive sector accounted for approximately 55% of all warranty claims in the U.S. during 2022.
- Distribution of Expenses: Cars and small vehicles bear the highest warranty costs, while suppliers generally face the lowest due to different warranty structures.
- Pandemic Influence: COVID-19 had a varied impact on different segments of the industry. Car and small vehicle manufacturers were most affected economically in 2020.
- Claims and Accruals Trends: Fluctuations in claims and accruals over the past 20 years, with notable changes during economic downturns and recall events.
- 2020’s Anomaly: Despite the pandemic, 2020 did not see a significant drop in warranty expenses. This contrasts with the prolonged impact of the 2008 Great Recession.
- Expense Rates: The claims and accrual rates as a percentage of sales showed volatility, especially during recessions and product recall periods.
- Warranty Reserve Balances: A record high in warranty reserve balances was observed in 2022, continuing a four-year trend.
Implications for the Automotive Industry
In summary, the findings indicate that warranty expenses are not only a significant cost for automotive manufacturers but are also subject to fluctuations based on economic conditions and specific industry events. This trend underscores the need for automotive companies to manage their warranty reserves and policies effectively, considering the potential for unexpected expenses.
Lastly, the upward trend in warranty expenses for U.S. automotive OEMs underscores the importance of effective warranty management. To navigate these challenges and reduce the headache on your dealership, contact us today for specialized support and solutions.