Importance of warranties in a “junk” economy

With ratings agencies Standard & Poor’s and Fitch having downgraded South Africa’s sovereign credit rating to ”junk” status, warranties have become ever more important to fleet owners. ANLERIE DE WET finds out how they can benefit the local transport industry

The downgrade of South Africa’s credit rating will affect the consumer’s pocket in every possible way. The cost of imported goods will increase as the rand weakens, and interest rates on insurance and loans will increase, too. South African businesses – including fleet owners and original equipment manufacturers (OEMs) – will be negatively affected financially.

Mark Williamson, MD of Warranty Solutions, says that, in general, vehicle parts have become more expensive worldwide over the last few years and, if the rand depreciates, vehicles without warranties will start gathering dust.

“The high price of imports and the falling value of the rand are the two main reasons that vehicle owners without warranty plans could struggle to keep their vehicles on the road,” says Williamson.

He adds that even before the downgrade operators struggled to afford the cost of vehicle repairs.

“If a vehicle has a general breakdown now, the repair costs could be as much as paying for repairs after an accident. Owners won’t be able to repair their vehicles and they will just stand,” says Williamson.

“Some vehicle owners think they can simply mitigate their risk with a comprehensive insurance policy, which only covers damage to a vehicle as a result of an accident. But they also need a warranty in order to negotiate lower prices for parts and repair services attributed to general wear and tear,” explains Williamson.

Dave van Graan, head of special sales projects at MAN Truck & Bus South Africa, says that buyers of new trucks and buses benefit from standard factory warranties in that their vehicles are then guaranteed to be of good quality.

“These warranties provide peace of mind as all parts used in the assembly of the vehicle, as well as the labour directly associated with such assembly in the original factories, are free from defect,” says Van Graan.

“These warranties enable the customer to claim for the replacement of a defective part or faulty workmanship, should an unplanned, warrantable failure occur within the warranty period.”

According to the Section 58 of the Consumer Protection Act, all goods must have at least a six-month warranty period, in which the consumers can choose to either repair, replace or be refunded for the purchased products.

Van Graan says that warranties can make a big difference to the pockets of truck and bus owners, as they generally cover the complete vehicle during its first year of operation, and expensive driveline components for up to five years.

“Premature failures of driveline components – such as engine, transmission and drive axles – can be very costly to operators that experience such failures during the first economic life of the vehicle – especially if repair costs have not been budgeted for, and where the failure occurs despite the proper use of the vehicle,” says Van Graan.

He adds that one of the most important aspects of a warranty is the ability of the OEM and its authorised dealer network to diagnose warrantable failures and make the required repairs speedily.

“This means that the dealer network needs to have made the necessary investments into facilities, parts, diagnostic equipment, tools and trained people – and that the costs of the respective repairs need to be channelled appropriately to the correct area of the business responsible for such repairs.”

Van Graan says the reason why warranties are important to OEMs such as MAN Truck & Bus – which offers a full range of standard and extended warranties – is because they give consumers confidence in the brand.

“Warranties show confidence in the design integrity of our products, and provide additional peace of mind for our customers who wish to manage their running costs more precisely in their specific operations,” says Van Graan.

He says the OEMs also offer warranties that are specifically tailored to individual customer’s needs, which means they will not need to pay for add-ons that are not applicable to their particular situation.

Williamson adds that OEMs can also utilise warranties to build customer trust in the quality of their brand. “With warranties, OEMs can generate more hype about a product and build a relationship with customers during the fixed running time of the warranties – and be more competitive during a very difficult economic time,” he concludes.