Bundling warrantee costs

[stevebfl]

In the thread on sludge, service interval calculations were discussed. It lead my mind astray for a moment and I thought I would discuss a concept I have battled other shop owners over. Most of them find the concept foreign and won't even look at it.

For the public the concept is the bundling of warrantee costs. I will tell the story as it applies to shop owners and see what rubs off.

The thread always starts with a shop owner writing that he has just heard from his customer (who had recently had a new water pump installed), that he has ruined his motor in another state due to the failure of that water pump he had installed. The shop owner of course didn't built the water pump and goes to his supplier. He asks for compensation for the defective part and his labor and sometimes he even suggests that he is owed the consequential damages that the car owner is asking for.

The general discussion goes to who offers what amount of warrantee and what ways each respondant would force his vendor to cover most or all of the problem.

Then I come along and state that I wouldn't buy from any vendor that crumbled to their tactics or from any vendor that offered labor warrantee let alone one that offered consequential damages warrantee.

I won't do this because warrantee costs are PAID for. They are not FREE!!! As a shop owner that has almost no warrantee problems I wish to self insure. I don't want to pay up front the costs of ill-equipted shops, using ill-trained techs who often use parts replacing for diagnostics and send the parts back for warrantee. So I buy quality parts direct and avoid the bundled costs and self-insure. I only have to be average to break even and I am in the 98 percentile so I win.

I mention this in what is probably a foreign context to point out that if you are anything like me, nothing ever breaks. It goes back to my childhood toys. It isn't an accident. I take care of what I own both in servcie and treatment. Is it logical for me to buy an automobile with the bundled warrantee costs of all the yahoos out there who tore up their toys?

[Rick Miley]

Makes sense to me. I haven't anything break bad enough to make me drive 2 hours north to your shop. But when it does, I will.

[blackmercedes]

Steve raises an interesting topic. Warranty is something that consumers have come to expect, but have no idea of the costs involved. They are simply insurance policies, nothing more.

Steve does not want to buy into the "pool" as he believes that the insurance policy does not guard againt manufacturing defects, but ham-fisted installs.

I know many people that buy a new car simply to have a warranty. They pay no attention to the costs involved. I have bought new cars in my life, but acknowledged it to be an ego-driven purchase, not one of economic sense.

However, I don't know the costs involved. It's pretty simple to figure out the warranty costs on a new car. You take the price of a new car, the value of the car just out of warranty, and you have a pretty good idea of what you paid for the warranty coverage, less any warranty repair costs along the way.

With a water pump repair, I can't come up with an overly simplistic model in my head. You could do a proper analysis, looking at failure rates and true costs, but I have no idea of what that looks like.

Is this "warranty" a significant cost in the price of the part?

[stevebfl]

To understand the cost of warrantee look at the cost to buy extended warrantees. They know the numbers and although a bunch have gone belly up recently due to not realizing the unique costs involved with the latest cars, for the most part they make money at it.

I would imagine that anyone reading these lists would be a low insurance risk against failure. Failures do happen within warrantee but the costs are mediated by the consumer in direct relation to his sense. A water pump recognized as leaking and sceduled for repair cost a bunch less than one that fails on the road and that last 2 miles takes out the block.

If you have never driven a car with a coolant leak you are a lottery winner. I drove a 450SEL from Orlando to Gainesville (110mi) with a puking water pump stopping every 15 miles to add 3 quarts from my 2 gallon stash. If you have learned how to drive without burning up the motor in a coolant loss why would you want to pay for warrantee costs that include people who can't, in the risk pool.

[jcyuhn]

Interesting topic, Steve.

It gets even more complex. The existence of the warranty affects consumer behavior. In the case of your customer he/she/it may have chosen to continue driving the car despite the overheating/low coolant warning because they were aware somebody else would take responsibility for the total damages! If they were to absorb the cost they may well have chosen the inconvenience - and lower total cost - of pulling over to the shoulder and getting a tow.

I suspect you're preaching to the choir here. Most of us drive cars that haven't had a warranty in a decade or more. That's the true definition of self-insuring!

- JimY

[blackmercedes]

I understand the cost of the waranty coverage is the price of the extended warranty. However, on a water pump I have never seen the price broken down.

Steve, in your estimation, what percentage of the cost of that water pump is for warranty?

[Gilly]

I see what you're saying. Still I would hesitate to buy an auto part, such as a water pump, starter, alternator, transmission or engine, for example, without any kind of warranty at all. Maybe I'm missing the point. If it were misdiagnosed, then that's one thing. But the company that supplied the component should stand by the part to be free of defects.

Gilly

[stevebfl]

In a business situation most all good vendors will back their part with a replacement or a credit. As a Bosch Service Center I am paid completely on labor also if a part is defective.

In the case of my relationship with Bosch the warrantee is not dependent on purchase requirements. I can buy the Bosch part through MB or in California and I get warrantee through Bosch in Chicago.

The concept I referred to above about discussions within the shop management forum of iATN, refers to the common practice of an independent shop tieing themselves to a company like N*P* or C*r qu*st. Most of these shops don't look up their own part numbers and buy a whole program including warrantees of labor in the deal. Generally speaking these marketing entities will charge as much as 50% mor(for the parts) than direct importers like WP that don't warrant anything but the product (no insurance sold here).

I have never had a warrantee claim such as the one used in my original example. We have had new water pumps leak and we have even left a drain plug (or two) loose. But even after 25 years of exposure we have never had a warrantee problem and a lack of sense occur at the same time (knock on wood). I do pay for insurance and with yearly parts sales approaching $1,000,000, 10-20% paid for warrantee insurance costs would be a healthy chuck of money.