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Sewells best practise: Warranty systems – painful or profitable?

Twice in recent years carmakers have commissioned us to review their warranty systems.

Surprisingly, and perhaps to the credit of both carmakers, we were asked to poll dealers’ views on warranty terms and conditions, goodwill claims, and working with the warranty system and its performance. In addition, however, we were asked to look at how the carmakers audit claims for validity.

Both these projects highlighted that dealers must have robust warranty processes in place, or they risk an on-going warranty submission and payment nightmare, and even worse an in-depth audit.

Carmakers’ warranty systems are not simple, and definitely not straightforward. But the reason is simple and straightforward – money, lots of money. We estimate manufacturers now pay out almost £1bn a year covering some 7.2m cars under three years old. Therefore carmakers are entitled to require that claims are accurate.

Warranty audits start when carmakers – in the same way as Customs and Excise, look for ‘problems’ in the VAT system – produce key yardsticks for claims.

Then they consider the pattern of claims at a high level, and look for exceptions. From this overview, dealers with ‘out of the ordinary’ claim patterns attract the attention of an audit team, which could end in an onsite visit. The result of onsite audits, according to one of our carmaker clients, is an average of 6% of the inspected sample being disallowed. For a typical dealer that’s £12,000.

Both these projects threw up two clear best practice points for dealers – employ a dedicated warranty clerk (part-time perhaps) and install processes which include an audit trail for internal and external purposes.

A transparent audit trail can be difficult to achieve, but the secret is to neatly file away hard copies of all the paperwork. Your manufacturer might require you to keep everything for up to two years anyway.

Warranty deserves your best efforts both technically and administratively. Get it right and your customers and manufacturer will be happy, and you profit; get it wrong and you will experience pain and potential financial loss.

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