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 Warranty and Its Cost: It’s More than Just a Dollar Amount

DATE: Will be calculated from "Release Start Date" field.

​AVON LAKE, Ohio - On a daily basis, we at Ohio Assembly Plant (OHAP) are reminded of the cost of shipping units with incorrect parts or with unsecured parts. 

As we look through our scrap costs, it doesn’t seem as though the changing of parts under warranty should be much more than our cost at the assembly plant.  However, this is not the case. 

First, I should explain that the Ford dealers are a separate entity and are not owned by Ford Motor Company.  They are usually owned by an individual or partners who then have a franchise with Ford. 

When a Ford dealer needs a part for warranty purposes, they order it from Ford Motor Company Parts Division, who sells the part to the dealer at a cost higher than what we at OHAP pay directly from the vendors.  The dealership can then mark this part up a certain percentage, according to Ford Motor Company guidelines.  While it is not a huge markup, they do mark up the parts under warranty.  

Ford Motor Company has a warranty flat rate book that the dealers use to charge a set amount for labor costs.  These costs also are approved by Ford.  

Now, what people wonder most is why the claim is so much for labor.  While all dealers have a labor rate – just like plumbers and electricians – under warranty, the dealer does not charge the full labor rate.  Instead, they charge a warranty labor rate and depending on the area, it could be low or extremely high.

For example, if we ship a unit with the wrong bumper, we have ultimately disappointed the customer.  The customer is not happy when they have to travel back to the dealer have their new bumper  installed on their new vehicle.

Furthermore, when OHAP orders that bumper, it comes with the brackets and the vinyl step pad intact.  When the dealer orders the bumper, he has to order it in pieces.  It is not available to the dealer as one piece like it is for OHAP. 

The dealer has to then assemble the bumper, remove the old bumper and then install the new bumper.  While this doesn’t sound like much, here’s the break down in cost: 
 
• Bumper cost at the OHAP is $118.83.
• Extended cost of the bumper at the dealership:  $369.45.
• Extended cost of the brackets at the dealership:  $144.20.
• Extended cost of the vinyl step pad at the dealership: $31.11.  
(Extended cost is the dealer cost with their allowable mark-up.)
• Let’s add the labor cost, which in this case is: $136.26.  

If you add this all up, it will come to $681.02.  This unit with the wrong bumper has now cost OHAP over $550. 

In addition to the money this has cost the plant, the customer – who deserves the very best product  – will be unhappy.  This customer may tell their friends … who may then tell their friends and so on. 

Finally, this error is reflected in the plant’s warranty numbers.  This metric is one of the measurements used to determine the overall performance at a plant.

The cost of warranty items is far more than just the money. It’s our reputation – both OHAP’s and Ford Motor Company’s.
 

 

  

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3/6/2013 6:00 AM