Significant Warranty Savings From HP and Rockwell

By Tom Allen

According to Warranty Week, there is a small group amongst the top 200 US warranty providers (US-based manufacturers spending $8 million+ per year on warranty claims) that has consistently reduced their warranty expense rates over the last 12 years.

The group, consisting of just eight companies, have saved millions – if not billions – of dollars each since 2003. Notable to the display industry were HP – the most successful warranty cost-cutter of them all – and Rockwell Collins.

In 2003, HP spent more than 4% of its product revenue on warranty claims. In the most recent fiscal year, ending on the 31st October 2014, that figure had been lowered to 2.6%. Putting that in context, that is $1.93 billion spent on warranty claims worldwide last year; if the figure were still 4%, that would have been $2.97 billion. ‘In other words, HP has reduced its warranty expenses by more than $1 billion a year since 2003′.

A similar saving is seen in accruals. In 2003, HP set aside 3.8% of revenue for accruals, which has since been cut to 2.5%. If accruals had remained unchanged, the company’s bill would have equaled $2.78 billion last year, instead of $1.84 billion. In effect, HP has saved itself $940 billion by cutting its accrual rate!

Note that HP’s claims and accruals rates have been rising since Q1’14, however. It is possible – Warranty Week says – that the period of warranty cost-cutting is over. On the other hand, this has happened before (at the start of fiscal 2008 and again at the start of fiscal 2011), so may be a blip.

Rockwell Collins has cut its warranty costs sharply since 2003, by more than 3% to current levels of around 1.1%. However, these latest numbers aren’t even the company’s lowest levels: those belong to a sub-1% claims rate in fiscal 2012 and 0.7% accruals in early 2010.

If Rockwell Collins were paying claims and making accruals at the same rate as 2003, its claims would have cost $74 million instead of $47 million last year, while accruals would have been more than $71 million rather than $31 million. Depending on the metric, the company is saving itself between $31 and $40 million a year compared to 2003.

Rockwell Collins warranty claims and accruals