Alleged defects rob aftermarket of margin

Much like an archeological dig, the warranty pile can give a good indication to the health of the automotive aftermarket supply chain.

AASA has initiated a deep dive into the dark recesses of warranty, a place many have ventured, but none have returned with a viable process or solution that has resulted in a significant reduction.

According to the preliminary results of AASA’s annual Pulse survey, (released to participants on June 20) respondents report that warranty reduces annual sales by an average of 2.6 percent.  Some companies reported a warranty rate in the double digits and some as high as 18 percent; this equates to approximately $3.5 billion of lost revenue when calculated at retail dollars across the entire aftermarket parts distribution chain.  If we took a ½ point off of warranty, it would mean an additional $670+ million in bottom line revenue for the aftermarket. That does not include time, labor, shipping or any of the hidden costs of warranty (not to mention environmental issues such as disposal and resource conservation).

Eighty-five percent of the pulse respondents reported that actual product defects account for only about 2.5 percent of the estimated $3.5 billion.  The cause and effects are many and have been studied by each of you individually. Preliminary results from AASA’s recently conducted 2nd quarter barometer (full results to the survey respondents will be released early July) indicate that 25 percent of you ranked reducing warranty cost a 10 (on a scale of 1-10) as being very important to your company. Yet the rate continues to rise.  You identified three major areas that contribute to “alleged” defectives: installation or other service provider error, product returned for no known reason, and insufficient training at the shop, DIY, or counter level.  What would our channel partners answer to the same question be?

These responses should surprise none of you and many have already identified these roots causes through your own research. So what are we proposing other than opening the wound once again?

The AASA Special Summit being held on August 26 at the Chicago O’Hare Marriott will address three margin improvement opportunities for the aftermarket: the do’s and don’ts of managing your pricing via MAP or unilateral pricing controls, “alleged” warranty, and the release of AASA’s Booz and Company study that divulges the role of the changing supplier. Arent Fox also will have a representative on site to ensure that antitrust guidelines are followed. A copy of AASA’s antitrust guidelines can be accessed here.

We would like to start the discussion with you on warranty at the Special Summit, resulting in dialogue with our channel partners that elevates this topic to a key aftermarket initiative. No one wins with warranty and we must collectively take the initiative to reduce the growing pile of waste in our bottom lines. 

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