Technical Paper
Quality Improvement and Warranty Cost Containment: Better Answers are in the Text
2004-10-26
2004-01-2666
The automotive industry is plagued with quality concerns and with quality and warranty management issues. As shown in the table below, the industry spends on average more than 2% of its product revenues on warranty costs that total over $10 billion per year. (Source: InformationWeek March 30, 2004) With average warranty reserve exceeding $700 for a vehicle with a typical profit margin of only $175, and market pressure to provide longer and more comprehensive warranties, OEMs and Tier I suppliers carry longer term liabilities and are under increased financial pressure. Increased visibility to product quality, underscored by the TREAD Act warranty data reporting requirements and the FASB warranty disclosure rules, will continue to add to the pressure on OEMs to improve initial quality and significantly improve their ability to quickly detect and correct quality problems.
