Warranty wars

HOW FIVE YEARS BECAME THE NORM IN AUSTRALIA, AND WHY SOME BRANDS ARE DRAGGING THEIR FEET

CAMERON KIRBY

FIVE IS THE new three when it comes to new-car warranties in Australia.

It was a change that seemingly happened overnight, with almost every mainstream brand in the country making the switch last year. But there were some holdouts – mainly premium brands – who held on to the three-year warranty period.

BMW and Audi have remained staunch in the wake of Merc’s announcement

Then along came Mercedes-Benz Australia, who made the shock announcement last month that it would switch to a five-year warranty for all its cars, including AMG.

While it may seem like the kind of call that can be made with a flick of the pen, an industry insider working for a top-10-selling brand told Wheels the move from three to five years cost the company millions.

“This is because the car company must have a contingency plan for the extra parts it will need,” he said. “If you have a five-year warranty instead of three, you are going to have an outlay cost for parts; it’s inevitable.

The more you sell, the more warranty claims you will encounter.”

Manufacturers we talked to remained tight-lipped about the percentage of cars sold that end up attracting a warranty claim. But as our industry insider explained, even if a fraction of a percent have issues, the costs can rise rapidly.

“Before anything is signed off, there will be forecasts for ‘things gone wrong’ previously on a model,” he added. “For example, if you have a model that is blowing transmissions at 130,000km, you’d have to factor that in.

“As vehicles get older, they cost more. Offering a warranty for a vehicle from year four to five will cost more than from year one to two.

“If you sell 100,000 cars a year compared to 10,000, the costs will be going up further. If you then have a hypothetical warranty claim percentage of one, that’s still 1000 cars needing a fix. That won’t be cheap.”

It’s likely in many instances that there would be some marketing budget injected to cover the costs associated with an extended warranty. This is because, at its core, the extension is about building brand strength.

Jerry Stamoulis, MB Australia’s PR boss, said the company had been working on the new warranty for years.

“There wasn’t a moment where we said, ‘Okay, we need to launch now’. It was a process, and our number one priority was to get our servicing process and pricing improved and made clearer to the customer – and we achieved that last year,” he explained.

“The next step was improving the process for not only when someone buys the car, but when they go to trade it in, or sell it.”

The warranty on Mercedes-Benz vehicles globally is only two years, so the process for the Australian division included not only convincing local executives, but also those back home at German HQ.

Unlike the domino effect with mainstream manufacturers, other German premium brands have remained staunch in the wake of Merc’s announcement. BMW and Audi told Wheels they had no intention of moving away from three-year warranties ... yet. Though there are (small) moves afoot. Jaguar is currently offering a five year warranty on selected models for a limited time.

CAMERON KIRBY