Warranty handling in the automotive industry

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This article explains how to deal with warranty concern in the automotive industry.

[edit] 1. Warranty Principles and Issues

a. Warranty Agreements between the parties shall be finalised as part of the O.E. contract and be driven by quality and reliability improvement and early problem resolution criteria and not primarily as a financial cost recovery process.

b. Warranty Agreements should be concluded with the main contracting partners. Warranty Agreements should not include involvement of third parties who manage the warranty process and whose reimbursement is based on financial recovery.

c. Extended warranties, purchased by the consumer, shall never be extended to the supplier.

d. There shall be no changes in Warranty Terms and Conditions without agreement between the parties.

e. Warranty always relates to one specific product identified in an agreement by specification and relates to defined applications and proper use.

f. A warranty case is a failure to meet the agreed specification.

g. Experience with the product within the warranty period may be used to improve products. However, this improvement activity is a separate matter to warranty terms and conditions.

h. The warranty period starts from the date of delivery of the product to the vehicle manufacturer. It shall not exceed an overall time limit of up to six months in addition to the statutory warranty period starting from the date of registration of the vehicle. The nature of the product may require an adequate reduction of the warranty period.

[edit] 2. Warranty Process

a. Access to Dealers - Access to Dealers (in conjunction with the VM) is not to be the norm but evidence of correct diagnosis is required in order to minimise No Fault Found (NFF) and assist in root cause investigation.

b. Availability of Warranty Returns - Parts are required in order to identify warranty failure modes to enable corrective actions to be implemented.

c. Availability of Warranty Data - Need additional information in respect to the application of the suspect defective part and the environment within the system (evidence of correct maintenance, servicing, diagnostics etc.). In some circumstances vehicle service history should be available to understand the circumstances of the defect and the real root cause.

d. Supplier Reporting on Warranty Parts – Suppliers are required to report findings of analysis of warranty parts via input into VM specific recording systems. There would be benefit in harmonising warranty data exchange between Suppliers and VM’s.

e. Corrective Action Implementation - Require VM to take prompt and effective action on VM responsible concerns.

[edit] 3. Warranty Data

a. Suppliers should have full access to all warranty data held by the VM b. Access to warranty data should be made available free of cost.

4. Warranty Terms and Costs a. Supplier Warranty Period

i. Quality/Reliability targets do not define warranty period. The warranty period (time and/or mileage) is as stated in the warranty contract.

ii. There will be no changes in warranty period for existing contracts without agreement between the parties. If agreement is not reached on the terms and conditions of the warranty extension, only the warranty conditions in force at the time of signature of the supply contract shall apply. See Attachment 1 for general principles for negotiating application of the extension of the contractual warranty to existing contracts.

iii. The Directive 1999/44/EC (May 25, 1999) is a Directive in favour of consumers. Companies are not consumers. Only in the relationship between the consumer and the seller is the 2 years warranty period mandatory. Within the parties of the supply chain this period can be reduced by agreement. See Attachment 2 for further details.

iv. Warranty provisions should not be undermined by provisions for goodwill payments made by VMs

b. Warranty Sharing Program - Impact on Supplier – If targets are set and payments are related to the target level then targets must reflect the current performance level of the product. Some ability to exclude special causes is required and an ability to add some form of cap to limit cost risks.

c. Financial Resolution of Claims i. Warranty Costs – Require VM to verify the validity and consistency of warranty expenses reimbursed through its network and to provide verification paperwork to Supplier on request.

ii. Determining Supplier liability - Applying ‘accept proportion’, from sample returns, to total ‘paper’ claims can be of concern as sample may not be representative. Also, level of ‘paper’ claims can be much higher in non-return markets. Sampling and subsequent application to ‘paper’ claims should only be applied following agreement between the Supplier and VM on the methodology.

d. Cost Structure Breakdown

i. Parts – at Supplier selling price to VM for service parts.

ii. Labour – at agree labour rates and agreed Remove &Refit (R&R) time. Should be able to limit R&R time to the time of the 'typical' application.

iii. Handling – (at agreed fixed percentage of parts price, typically between 15% and 20%, up to a maximum cost).

iv. Consequential Costs - Position should be to limit to direct and foreseeable costs.

v. Note : Costs should not be disproportionate to the purchase price of the parts – total costs per claim should be no more than an agreed multiple of the parts cost [e.g. 2 times]. Costs, which shall be paid by the Supplier, have to be in an appropriate relationship to the price of his part being delivered, with an agreed cap.

e. Supplier Liability for No Fault Found (NFF)

i. General - A contribution to ‘defect not found’ (if evidence is provided by VM that product was faulty on the vehicle and unable to reproduce fault on the bench) is negotiable but no contribution should be made to NFF (many NFF result from ‘System’ interface issues and are the outcome of dealer ‘diagnosis by substitution’ – not Supplier responsibility). A defect is defined as a deviation from the agreed specification.

ii. Misdiagnosis at Dealers - Supplier should only pay against Supplier responsible parts. In appropriate cases Dealers should be put on ‘Prior Approval’ and correct diagnosis supported by ‘Real Time Diagnosis’ hotline. In case of NFF Supplier shall be reimbursed with the cost of testing and investigation.

5. Recall

The terms under which the costs for a vehicle recall action is undertaken should be agreed separately from the standard warranty provisions since it is not a warranty issue.

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