Mitigating Warranty Risk for Automotive Industry

Warranty is offered by manufacturers as protection and promotional tools. It also gives customers a certain degree of insurance against product failures for a certain period. Although bringing those benefits, it involves various risks originating from various perspectives of the product lifetime cycle. To prepare risk mitigation plans is therefore needed, which is challenging due to the increasing complexity of the product designs and the long warranty period. Accordingly, the decision made to select the mitigation plan involves a high level of uncertainty. This paper develops a plan to mitigate warranty risk based on cumulative prospect theory, which helps warranty decision makers in selecting the optimal mitigation plan

Managing Risk for Auto Warranties

Purpose - This paper aims to (1) analyse the existing work of warranty risk management (WaRM); (2) develop a generic WaRM framework; and (3) design a generic taxonomy for warranty hazards from a warranty chain perspective. Design/methodology/approach – To understand the top warranty hazards, we designed a questionnaire, received 40 responses from the warranty decision makers (WDM) in the automotive industry in the UK and then analysed the responses. Findings – The assembly process capability at suppliers is the top contributor to warranty incidents from the suppliers’ and original equipment manufacturers (OEMs’) viewpoints. The human error at different stages of the product lifecycle contributes to the occurrence of warranty incidents. The collaboration among parties, particularly, the accessibility to warranty-related data between parties (i.e., suppliers, OEM and dealers), is limited. Customers’ fraud contributes more to warranty costs than warranty services providers’ (WSPs) fraud. The top contributors to customer dissatisfaction relating to warranty are the warranty service time and service quality. Research limitations/implications – The questionnaires were used to collect data in the UK, which implies the research outcomes of this paper may only reflect the UK area. Practical implications – The WaRM framework and taxonomy proposed in this paper provide warranty decision makers with a holistic view to identifying the top contributors to warranty incidents. With them, the decision makers will be able to allocate the required fund and efforts more effectively. Originality/value – This paper contributes to the literature by providing the first work of systematically analysing the top contributors to warranty incidents and costs and by providing a WaRM framework