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Warranty Agreement 101

Written By: Pete Wallen, Director of Operations, on Sep 19, 2018

Step 1: Negotiate your warranty pre-sale

Depending on your leverage, i.e., how many assets you are purchasing, or if you will select the supplier as a preferred supplier for future purchases, you may be able to negotiate a more robust warranty coverage for your assets pre-sale. By default, most base warranties do not cover the asset’s downtime. Yet, parts and labor recovery do not offset the financial burden of an out-of-service asset. For every minute, hour, and day that the asset sits out-of-commission, you’re suffering from lost revenue. There may be an opportunity for the supplier to shoulder a percentage of downtime costs if it is negotiated at the point of sale. So, before you sign the cheque, discuss the prospect of adding downtime recovery terms to your warranty agreement.

Step 2: Understand the warranty package and guidelines

A warranty agreement is an assurance from the manufacturer that repair or replacement will be provided, free of charge, of any part proving defective in material or quality for a certain period after purchase. Your warranty agreement document will describe what your coverage is for an asset or group of assets you’ve purchased.

What is the warranty package, and what information should it contain?

The warranty package most often comes as part of your sales document and is usually negotiated pre-sale. What do you need in-hand to document, analyze and ultimately understand what your warranty is?

  • The contact information of your OEM sales/warranty representative. The individual in charge of helping you understand the content and definitions of your warranty.
  • A list of the purchased assets that are currently covered by OEM warranty, or a list of assets that you are in the midst of purchasing as well as the duration of the agreement (whether in miles, KMs, engine hours, days, asset age, etc).
  • Inclusions and exclusions, or in other words details that identify the agreement systems covered (i.e., drivetrain, engine, cabin chassis).
  • Specific terms per system per inclusion if it is different than what is identified in the base.
  • The warranty package contains information about your base warranty and your extended warranty (if applicable).

What are the warranty guidelines?

Guidelines may be specific or generic, in which the OEM states what is needed to process a claim, and what is provided within a reimbursement. You will find the following as examples for warranty guidelines:

  • A submitted claim where applicable must contain a serial #, year, make, model in the claim with an attached photo.
  • Claim must be submitted within xx days of failure.
  • Specific claims must be accompanied with the part to be returned as part of the claim.
  • The claim will be rejected if the part is received with damage other than what is detailed in the claim submitted.
  • Specific claims will only be paid as a percentage based on the OEMs discretion.

Step 3: Review what’s covered in the base warranty

The base usually contains specific details identifying what is covered and for what duration. The base package will cover elements of the asset for a limited period of time. For example, bumper-to-bumper warranty most often covers the first 90 days. In most cases, after the 90 days, the OEMs do not cover preventive maintenance-related items. The base agreement will cover all items described with the exception of serviceable items (fluids and filters), or breakdowns with a non-warrantable reason for repair, such an accident.

Step 4: Analyze extended warranties

Extended warranty kicks in when you get outside of the base warranty exceeding the allotted time, miles, or kilometers. Extended warranty agreements can either be added on to the asset, or purchased and included at the point of sale of the asset. When you pay for an extended warranty agreement, consider implementing a process that allows you to track occurrences and recoverables to validate the return on investment (ROI). Track warranties through a spreadsheet or preferably through a maintenance software system to help gauge the value of your extended warranties.

For example, if your purchase several assets along with a $300 dollar extended for each vehicle, tracking your claims will help you identify if that warranty was worthwhile. If you don’t have enough claims, you can determine whether or not you are better off investing the $300/asset somewhere else when it comes to future purchases.

Step 5: Understand policy warranty

Whether you are eligible to negotiate policy warranty will be dependent on your relationship with the supplier and some other factors such as the number of assets you purchased from them. Negotiating policy warranty can happen one of two ways:

  1. On the front end during negotiation. The supplier should outline the percent of downtime paid per day (See “Negotiating your warranty pre-sale”).
  2. Through accurately tracking the frequency of asset breakdowns related to a certain part or system. If that failure is post-warranty, you may be able to recover some historical costs post-warranty.

For example, post-warranty you see 5% of the fleet with that Year/Make/Model of the failure of a specific component, you may be able to compel the supplier of that item to pay a percentage of historical/future failures if:

  1. Failures are well-documented. The best way to maintain a highly accurate record is to use an Enterprise Asset Management (EAM) software system.
  2. You can use reports to isolate a specific part or system as the cause of a series of historical breakdowns. Many EAM software systems provide these reports.

If your team invests the time to understand, create, assign, file, recover, and continuously measure your warranty agreements, you can see a significant increase in warranty capture. If you have any questions or what like to learn more about how to maximize warranty savings, reach out to our team here.