The Basis for Company Warranties and Guarantees

When a company offers a warranty or guarantee, it's not usually out of the kindness of their hearts. There are specific reasons and underlying factors that influence why and how these warranties are provided. This article explores the primary drivers behind warranties and guarantees, with a special focus on the impact of competition and sales pitches.

Legal and Competitive Influence on Warranties

While some companies may offer warranties as a form of customer service, the practice often stems from legal requirements and competitive pressures. Applicable laws can mandate certain levels of warranty coverage to protect consumers, but competition plays a significant role in setting and maintaining warranty standards.

The Role of Competition in Warranties

Competition is the main driver behind warranties. Companies like offering warranties as part of their sales pitch to gain an edge over competitors. A classic example is the case of Chrysler Corporation, which offered a 7-year 70,000-kilometer warranty on its engines and drivetrains. According to the strategy, they priced the additional warranty at a cost of about 25 to 35 per vehicle. This meant that the warranty could have cost them very little, yet it effectively boosted their market share.

American Automobile Manufacturers and Warranty Innovations

In the past, American automobile manufacturers such as Chrysler, General Motors, and Ford established varying warranty standards. Chrysler, for instance, once offered a 7-year 70,000-kilometer warranty, which was a significant extension beyond the standard 3-year 36,000-kilometer warranty offered by the competition. This unusual warranty was a successful sales strategy, helping Chrysler to climb to third place in the industry, partially due to this extended warranty.

Evolving Warranties in the Modern Age

Fast forward to the present day, the industry has witnessed significant changes in warranty offerings. For instance, modern hard drives, solid-state drives, thumb drives, CPUs, motherboards, and other computer-related products typically come with one to five year warranties. However, the highest-quality components are often sold with the warranty as an integral part of the purchase price.

Current Trends in Automobile Warranties

Regarding automobiles, the situation has changed over the years. In the early 1970s, Chevrolet offered a special-order aluminum block 427 engine aimed at racing purposes only. The parts guy replied that the warranty was "you bought it, it's yours," meaning they provided no warranty on this component. This independent component certainly offered a unique feature but came with no guarantee of service.

On the other hand, modern high-performance engines, such as those with over 700 horsepower, are now provided with warranties similar to other parts of the vehicle. This shift reflects the industry's collective understanding of production standards and market dynamics.

Conclusion

Company warranties and guarantees are shaped by a combination of legal requirements and competitive pressures. While they serve as a testament to a company's confidence in their products, the primary motivation often lies in enhancing the sales pitch and securing a competitive advantage. As market conditions evolve, so too do warranty policies, reflecting evolving consumer expectations and business strategies.