Downward Trend in Costs


We’ve totaled up all the claims paid and accruals made by all reporting manufacturers, and divided the totals by the amount of product revenue reported by these same companies, during each of the past 38 quarters.

Over that nine-and-a-half-year period, it’s clear that both the average claims rate and accrual rate for American manufacturers has been trending lower, except for that giant spike in claims seen in 2008-2009.

That, of course, was a symptom of the recession, when sales revenue plummeted but warranty claims did not. Manufacturers weren’t paying out more, but because less was coming in, the percentages soared, peaking at 1.87% in June 2009.

But then, as sales recovered, the downward trend resumed for claims. And that story has continued for the past three years. But it was never interrupted for accruals. Notice that the green line in Figure 1, while it wiggles a bit, has been trending down since 2003. In fact, the average accrual rate hit its lowest level ever a year ago, and is only slightly above that level now.



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