A warranty primer

In recent a letter to Rider to Rider entry in the MOA’s BMW Owners News magazine, a fellow MOA member complained about what he regarded as a poor response from a company that sold him a helmet for a problem that was evidently no longer covered by the helmet’s warranty. Shortly after reading that letter, I overheard a woman at the service counter of a repair shop complain about that the repair warranty on her smart phone was “awfully short” and now she had to pay to fix it again. Both complaints arise I believe from the same lack of appreciation of how the cost of warranty repairs impact the price of goods and services.

First the basics—and yes, this is boring. Every sale of goods includes a warranty unless the goods are offered “as is.” In the latter transaction the buyer may rely only on his own evaluation of the product (Caveat emptor!). Any problem with the product is the buyer’s problem. All other sales include at least some representations by the seller as to the quality, reliability, condition or value of what is sold. It is common for the seller to state that the goods are “free from defects in material or workmanship.” Other representations may be found in the sales literature, what the seller says, or even what is commonly expected between sellers and buyers of such goods. Vague and grand statements about the product such as “It’s the Best,” “Finest you will ever buy,” “Industry leader,” and “Uncommonly good” are regarded as mere puffery. They are certainly not enforceable warranty terms.

Sellers of consumer goods strive to limit their exposure to claims, but also know that in order to make a sale, they must provide some level of assurance to the buyer that what is being offered for sale is reliable and of good quality. If done correctly this is achieved by presenting the buyer with a “Limited Warranty.” The qualifier “Limited” is a term of art and is critical in limiting the seller’s financial exposure to the terms of the warranty. Without that term, the warranty is a “general” warranty, and the seller’s exposure is broad, going beyond what it states in the warranty terms and may include other representations made about the goods or services, even those in its sales literature.

Limited warranties on consumer products are governed by a 1975 federal law that was created to fix problems because of the perception that some manufacturers were using disclaimers on warranties in an unfair or misleading manner. The law does not require, however, any product to have a warranty (it may be sold “as is”), but if it does have a warranty, the warranty must comply with the terms of the law.

Warranties must contain specific information about the coverage of the warranty in a single, clear, easy-to-read document, and the information must be available prior to purchase. This is why we typically see it on the packaging, or at least can be found by following an URL or QR code to the seller’s website. (The seller must also provide a non-internet-based way of reviewing the warranty before the sale, a kind Congressional bow to the Luddites among us).

The length and scope of the warranty are factors which sellers must consider when pricing their products. Those with a long history of selling a product know how long it will last under normal use, and what attributes it must maintain during its useful life. The cost to the seller of curing any deficiency from these expectations and how often those deficiencies can be expected to be realized must be considered in the pricing of the product. If a seller was obligated to fix or replace every product forever, it obviously would not be in business very long.

Consider the analysis of a seller of a vehicle with a “5 Year/100,000-mile” limited warranty. The seller must understand the cost of the likely claims during the term of that warranty and then spread that cost per vehicle across all vehicle sales. Such costs are thus baked into the price, which the seller must recoup to realize any profit.

In making our purchasing decisions, whether for helmets, gloves or the motorcycles we desire, we need to consider how important the warranty terms are to our decision to purchase. If an extended warranty is offered, which has become very common in the consumer goods market, does it make sense to spend more, or should we take the risk of the cost of an unexpected failure and cash flow from our emergency funds (you have such a fund, right?) the cost to repair or replace the failed item.

If we have gone through that analysis, then our expectations post warranty should be very “limited.” Any response or support post-warranty, which our fellow rider with the helmet problem was evidently pursuing, we then know is entirely a matter of how much goodwill the seller wants to offer.

NOTE: The BMW MOA has a Consumer Liaison to help you if you feel you’ve been wronged by a motorcycle-related manufacturer, builder, maker, retailer, distributor or other commercial entity. Reach out to our Consumer Liaison by emailing [email protected]. They may not be successful in every situation, especially when a warranty is involved, but it never hurts to have somebody on your side!

Find out more by listening to the episode of 200 Miles Before Breakfast featuring the MOA’s Consumer Liaison!