Cost of Processing Auto Warranty Claims Up by 28%

WarrCloud, an automated auto warranty processing platform, released results of its Service Warranty Claims Process Study, which revealed that the current cost of processing auto warranty claims is 28% higher as a percent of revenue than when a similar study was conducted in 2020. Additionally, processing a single warranty claim takes 47% more time compared. Current realities and anticipated trends outlined in the study indicate that warranty claims processing will continue to erode auto dealership bottom lines.

Key findings include:

• A sharp increase in warranty claims volume. Nearly 60% of dealerships surveyed indicated that the volume of warranty claims increased in recent years, up 17% over 2020.
• Volume is expected to continue to increase. Fifty-five percent of dealerships predict their warranty claims processing volume will increase 47% over 2020. This prediction is based on an anticipated increase in vehicle sales; a perceived decrease in vehicle quality, and a corresponding increase in recalls; and the impact of advanced/complex vehicle technology, including that found in hybrid and electric vehicles. Notably, the introduction of more sophisticated technology in vehicles is expected to increase the likelihood of claims, and warranty periods are expected to be longer to support burgeoning technologies such as battery-electric vehicles and hybrid vehicles.
• Longer processing time. The time it takes to navigate the warranty claims process from start to finish is up 30% over 2020.
• More auto dealership employees are spending more time on warranty claims processing. The increased volume of claims and the expectation that this trend will continue, combined with the increased time it takes to complete each claim, means dealerships have more employees involved in the process - up 67% over 2020. Further, dealerships have more full-time employees whose primary function is claims submission, up 36% over 2020.

“Warranty claims comprise 31% of the service department’s consumer business, and we project that warranty claims will continue to increase through 2025 and beyond,” said WarrCloud founder and CEO Jim Roche. “Given that warranties are an intrinsic part of the business, it’s essential that dealerships do everything to relieve the rising costs associated with processing claims. Increased employee headcounts, longer processing times, and higher volumes all make claims processing a substantially higher expense as a percentage of overall revenue. For many, automating the process can provide a meaningful level of financial relief that can have an immediate net-positive impact on dealers’ bottom lines.”

A large number of auto dealerships have embraced outsourcing their warranty claims process - up 34% over 2020 - while others are strongly considering doing so, up 29%. Introducing a third party to handle warranty claims streamlines the process.

Impact of New Technologies on Claims

More than 75% of automotive dealers indicated that the increased level of technology in modern vehicles has had a meaningful impact on warranty claims volumes. This consensus bolsters the contention that vehicle technology is a substantial driver of warranty claims.

Currently, 39% say they believe hybrid vehicles will lead to an increase in warranty claims. This finding indicates a growing concern within the industry about the complexities associated with hybrid technology and its potential to drive up the number of warranty claims.

In 2023, 48% of the dealers surveyed stated that they believe electric vehicles will lead to a higher volume of warranty claims; only 30% had this perspective in 2020. This considerable shift reflects heightened industry concern about the new challenges associated with electric vehicle technology and its potential implications for warranty services.

Warranty Work vs. Safety Recalls

Fifty-nine percent of claims processed by automotive dealerships are for general warranty issues, while 41% pertain solely to recalls. Compared to 2020 figures, there is a marked increase in recall-related claims, up 14%, highlighting a shift in the mix toward safety recalls. Despite this change, most claims continue to be for non-recall warranty work.

Originally posted on F&I and Showroom