Warranty Companies Contend With Influx Of Third-Tier Brands

By Alan Wolf -- TWICE, 10/9/2006

New York — The avalanche of low-cost, off-brand flat-panel TVs and other A/V products produced and marketed by Asian factories has created a new set of challenges for the extended service providers (ESPs) who are contracted to repair them.

But not in the way one might guess.

While the long-term repair rates of third-tier branded goods remains to be seen, warranty companies contacted by TWICE report that their incidence of repair is no worse to date than that of better-known brands. The problem, they say, is that when issues do inevitably arise, a paucity of parts or authorized servicers can lead to frustration for consumers and higher costs for ESPs, who may be compelled to replace the entire product.

“The failure rate of third-tier brands is no worse than that of tier-one brands,” stated Matt Frankel, president of AIG Warranty. “The issue is parts availability — you can't get them. So the frequency of replacing the entire unit goes up and you have higher junk-out rates. It also takes longer to get the ticket resolved, so the customer gets angry at first, then happy when his new unit arrives.”

Kevin Rupkey, president/CEO of Bankers Warranty, parent of VAC Service Corp. agreed. “The biggest challenge for us is accessibility of parts and service literature. Most of these manufacturers keep costs down by not establishing service operations or parts procurement in the United States. Fortunately, much of this type of product, such as portable DVD players, tends to fall under our replacement plans, so we simply replace rather than repair the product for the consumer.”

Danny Hourigan, president of NEW Service Plan Division, contends that “Without knowing how many units were originally sold, it's impossible to say that products from these new Asian manufacturers are failing any more or less often than products from more established brands.”

“What we have seen,” he said, “is that some of the new manufacturers haven't developed a robust service supply chain compared to manufacturers who have been around longer. But the leadership team in our Service Management Group continues to work closely with these manufacturers to overcome these obstacles so that we can adequately support consumers.”

Other ESP execs, including Sean Hicks, president of Warrantech Consumer Product Services, say they have seen no evidence yet of higher failure rates for third-tier brands. “We're not sure what to expect at this point,” Hicks said. “A lot of the big brands are using the same factories as the new marketing companies that are bringing in cheaper LCDs. We will be monitoring this very closely.”

Jeff Oldenburg, VP of marketing and business development for Service Net, has another explanation for the low repair rates. “Today's retailers can't afford to sacrifice the image and loyalty they've created with their customers by selling low priced, low quality goods. So while they've turned to these new suppliers to help them remain competitive they make sure they are dealing with companies that have the quality and infrastructure to support their needs. That includes product quality and logistics up front as well as after-sale service and support.”

Mike Frosch, president of Aon Warranty Group, North America Non- Automotive, says it's too early to tell whether or not new manufacturers will drive higher extended warranty costs. But as the industry's only global single-source provider, and the first warranty company approved to do business in China, “We are in a unique position to put our finger directly on the manufacturing pulse.”

He added that because of its global underwriting, administration and direct marketing reach, Aon is uniquely positioned to provide third-tier manufacturers single-source solutions covering the entire value chain, including manufacturer and extended warranties.