This is true in all of the past 13 years. The most striking aspect of Figure 1, even allowing for the heavy truck anomaly, is the relatively large share of the total paid by the OEMs compared to the relatively small share paid by their suppliers. In effect, the heavy truck makers have already found an efficient way to transfer a huge amount of their warranty expenses to suppliers such as Cummins and Allison Transmission: They make suppliers responsible for their own warranties from the get-go. That structure serves to reduce the expense of the truck OEM and increase the expense of the suppliers counted in Figure 1. However, another factor is the way truck warranties are structured: instead of bumper-to-bumper warranties from the OEM, the warranties on truck engines and other major components are issued by the suppliers directly to the customer. The main reason is that there are vastly more cars and SUVs sold.

Passenger cars and light trucks account for roughly three-quarters of the OEM warranty expense, with heavy trucks and other commercial vehicles accounting for the rest. Once that major expense has run its course, the OEMs are likely to go back to spending roughly $9 billion a year on warranty claims. However, most of that 2014 jump was related to GM’s ignition switch safety recalls. Once the recession deepened, warranty claims, along with car and truck sales, remained subdued through 2013, before rebounding sharply in 20. At their peak in 2008, the entire U.S.-based automotive industry paid a net $13.64 billion in warranty claims, before that total plummeted during the recession to a low of $10.6 billion in 2010. Notice that the OEM total grew every year from 2003 until 2008, while the supplier total grew more or less proportionally. In Figure 1, the annual claims payments reported by the OEMs and their suppliers are counted for the past 13 years. Others such as Johnson Controls, Goodyear, and Wabco, make seating, tires, brake parts, and other components. Some, like Cummins and Eaton, make engines and transmissions.

Warranty Week separates the roster of 176 U.S.-based automotive manufacturers into two separate lists, with one comprised of 55 car and truck manufacturers such as GM, Ford, Paccar, and Navistar, and the other containing 121 of their top suppliers. Simply put, the customer-facing company gets stuck with the vast majority of the warranty expense. This is the case whether the vehicle in question is a passenger car or a commercial truck. In the automotive industry, the vehicle makers, or original equipment manufacturers (OEMs), pay most of the claims and also pay out a much higher percentage of their sales revenue than do their suppliers. One of the required disclosures tabulates the net amount a company pays out in warranty claims, consisting of payments they make to dealers, customers, and repair service providers, minus reimbursements they receive from suppliers. In late 2002, in an effort to prevent a repeat of the Enron and WorldCom accounting scandals, the Financial Accounting Standards Board began to require all manufacturers that issue warranties to disclose the size of those liabilities. Roughly 176 of them have a significant stake in the automotive industry, either as a manufacturer of vehicles or as a supplier of parts and components. Warranty Week, an online publication aimed at warranty management professionals, tracks hundreds of U.S.-based companies that report their warranty expenses in their financial statements and annual reports. It worked for awhile, but then the car and truck makers ran into an entirely new set of problems with massive safety recalls, which made their warranty expenses rise back to previous levels. A decade ago, the top U.S.-based makers of cars and trucks began a major effort to shift more of their warranty expenses back to their suppliers.

Shift car warranty