Warranty Issues in 2017

Foley & Lardner LLP

While the jury is out on whether 2017 will be a peak year for new vehicle sales, elevated OEM warranty and recall costs are likely to continue. OEMs, likely will continue to pay the largest share of these expenses, but suppliers can expect to pay a greater per-vehicle share.

In order to be awarded new business, suppliers typically accept liability for a broad range of costs resulting from non-conforming parts. Therefore, when a warranty issue arises, the supplier needs to react quickly to identify the root cause, contain problems, and establish clean points. The supplier should assemble a claim management team and identify and retrieve the relevant documents from the OEM and the company. Finally, ensure that responsibility for warranty claim management is not fragmented across business organizations.

Moreover, if a claim involves multiple parties, including a tier 1 supplier, an OEM, and a tier 2 supplier, a close working relationship between the OEM and the tier 1 supplier is required to identify and document quality issues early and promptly communicate responsibilities. When a warranty spike occurs, the tier 1 supplier must proactively:

  • Analyze warranty data from the OEM and request additional documentation supporting the OEM’s alleged costs and damages prior to settling warranty claims
  • Understand all contract terms and conditions relating to warranty and recall costs
  • Obtain specific details regarding how liability and related costs were established by the OEM

If a warranty claim involves one or more tier 2 suppliers, the tier 1 supplier must ensure:

  • Contemporaneous notice of the warranty claim is provided to the tier 2
  • Notice of any breach is provided to the tier 2
  • Documentation of root cause(s)
  • Documentary support for alleged damages
  • Witness interviews are conducted
  • Relevant key documents are collected and preserved

At the same time, a risk analysis should be performed and a settlement strategy developed. These steps are critical to ensuring that:

  • The supplier can demonstrate that it should only be responsible for paying a certain portion of the total costs
  • The tier 1 supplier can pass through any costs that are the responsibility of the tier 2 supplier
  • The tier 1 supplier can recover additional damages from the tier 2 supplier

Find Out More About These Developments and More
Foley’s experienced Automotive Industry Team has prepared a full report, entitled “Top Legal Issues Facing the Automotive Industry in 2017,” that examines the road ahead regarding antitrust, security, labor and employment, M&A, and more. Download it today.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Foley & Lardner LLP | Attorney Advertising

Written by:

Foley & Lardner LLP

Foley & Lardner LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.