Data-powered automotive warranty re-invention

Analyzing warranty data can drive warranty process redesign, improve quality, make customers happier—even point to new products and services.

At first glance, it appears to be a bad way to woo customers—a warranty process that’s used when things go wrong. Instead, it turns out to be an excellent opportunity for a company, not just to please its customers, but also to radically improve its business processes and find sources for future growth. For the automotive industry, as the traditional ownership model declines, companies are hungry for new revenue streams.

Recent IBM Institute for Business Value research found that on average, automotive original equipment manufacturers (OEMs) spend 2 percent of their annual revenue on paying warranty claims (claims rate). Their total warranty costs, including operations, are closer to 3 percent. For suppliers, these costs are 2.3 percent and 4.5 percent, respectively (see Figure below). The opportunity for improvement is significant.


But excessive warranty costs are only part of the picture. Money earmarked for warranty reserves to cover those costs can be substantial and difficult to accurately predict. To get a better sense of the issue, consider that, in 2018, total claims for global auto manufacturers were USD 56 billion, while they had USD 115 billion in reserves.

While cost reduction efforts can improve automotive company profitability, there is also value to be gained on the other side of the ledger. For example, one major auto OEM uses warranty data to improve its claims process and forecast parts usage. Time to identify non-compliant claims has decreased from three minutes to less than a minute, helping reduce labor costs by 52 percent.

But perhaps more important, forecasting parts usage allows the manufacturer