Automakers’ Warranty Costs Are Falling Despite Increase in Recalls

(Detroit Free Press/MCT) -

Warranty costs are falling for the U.S auto industry, even as the number of recalls gradually increases, according to a study released this week.

A review of publicly available data, conducted by the Southfield, Mich., consulting firm Stout Risius Ross, shows that warranty claims as a percentage of revenue fell from about 2.7 percent in 2003 to 1.9 percent last year. GM and Ford had similar rates, at less than 2 percent at the end of 2013. Chrysler’s figure was not available.

The new figures provide a rare look at one of the industry’s most carefully guarded metrics: How much do quality problems cost automakers?

“It is billions of dollars,” said Neil Steinkamp, the firm’s managing director. “It’s a significant financial issue that we should be aware of.”

Some industry observers regard warranty costs as a more accurate measure of quality than third-party surveys by sources such as J.D. Power and Associates and Consumer Reports.

The study’s release comes as General Motors grapples with the recall of 1.6 million small cars from model years 2003 through 2007. A defective ignition switch on some of those cars was linked to more than 30 accidents and 13 deaths. Some of the crashes involved alcohol or passengers who weren’t wearing seat belts.

GM has not publicly estimated the cost of the recall of the Chevrolet Cobalt, Pontiac G5, Saturn Ion, Chevrolet HHR, Pontiac Solstice and Saturn Sky.

The Stout Risius Ross study found that 64 percent of new vehicles experience a recall in their first year. But the costs associated with those recalls are declining.

“We see evidence to suggest recalls are becoming more common following new model introductions,” said Jake Reed, an SRR manager.

Reed also said the industry is becoming more proactive about issuing voluntary recalls, choosing to act before the National Highway Traffic Safety Administration issues a recall.

Automakers and suppliers “are getting better and more innovative about identifying issues, and fixing them before they become more costly,” Reed said.