Warranty Fraud Management

Chapter 4Warranty Costs

Warranty costs are the costs that a warranty provider incurs in servicing claims under warranty. These costs can be significant. In the United States, where accounting regulations force the publicly listed manufacturers to disclose their warranty cost figures, companies spent US$29 billion on warranty claims in 2014 (Arnum, 2015). Global warranty expenditures cannot be calculated with the same accuracy, as reporting them is not universally required. Arnum estimates that the global warranty costs are approximately three times the US costs, US$90 billion. This figure is solely for servicing base warranties. Expenditure on extended warranties and maintenance service contracts comes on top of this figure.

In the United States, warranty costs are on average in the range of 1.5 to 2 percent of product sales in the manufacturing sector. For individual companies, the costs can be significantly higher. However, comparing different companies is difficult, as there are differences in the accounting practices. Call center and training costs, for example, may or may not be included in warranty costs (Arnum, 2015).

Based on Warranty Week (2012), industries with above-average warranty expenditure included computer and automotive OEMs. In 2011, they accrued roughly 2 to 2.5 percent of their product sales as warranty costs. During the same period, computer peripherals, data storage, medical imaging systems, network equipment, and mobile phones had warranty accruals between ...