Construction Equipment Warranty – Transfer the Risk
An Inside Perspective
If you’ve been around the construction equipment industry, especially in the distribution of it, you more than likely are familiar with the terms construction equipment warranty or equipment service contract. These programs have been around the electronics and auto industries for years and buyers have grown to expect them. Like those other industries, it is now becoming more common to find buyers of construction equipment looking for warranties to protect their investment.
This seems to make perfect sense after you consider that businesses spend a significant amount of money for a hydraulic excavator, wheel loader, dozer, etc…, where the cost ranges well over what would be paid for a new computer or new car. By providing these customers an opportunity to reduce their worry about downtime when something goes wrong is a great tool heavy equipment manufacturers and construction equipment dealers can utilize to set them apart from their competition and gain a competitive advantage. Whether you’re a dealer fighting for business in your area of responsibility (AOR) or an OEM looking to increase market share, having a solid construction equipment warranty program is now a must!
Do it Yourself, Why Not?
You might be thinking to yourself it should be quite easy to develop a construction equipment warranty program. After all you can just handle this yourself and roll the dice, right? Well… sure you could! All you would need to do is have a great financial team who will account and accrue for these future incurred liabilities on your books depending on the terms and conditions you will offer to your customers. Realizing that some dealerships and OEM’s have these luxuries at their disposal we are already part of the way there!
Obviously, we will have first performed detailed and in-depth analysis all the various makes and models, severity and frequency of any and all claims for a period of time which has lead us to a credible numbers we feel confident with. Finally, now our finance guys and gals will have the most accurate and up to date numbers we can use to accrue for future losses as well as provided to us what we need to charge as a premium for all the various terms and conditions. Simple, isn’t it?
Oh, I forgot to mention, is it safe to assume that you already have a dedicated web based warranty management application with the most current and modern technologies? If yes, great! Then I imagine it has the quoting, invoicing, and notification to all parties components built into it with the ability to provide robust ad hoc reporting. I realize that there is a bit more to ensuring a successful program but this would be a great start. Congratulations, you are ready to take the industry by storm with your new program!
What if I don’t want to do this myself?
Lucky for you that there are a handful of companies who will provide programs and actually handle all the things mentioned above and more for both dealers and OEM’s (be on the lookout for our comparison of those in future posts). By involving a professional and qualified company to work with you to establish a construction equipment warranty program, all the services that you may not have the core competencies of are provided for you. In this case you would employ a strategy call risk transfer.
Simply defined, risk transfer is shifting risk from one party to another [InvestorWords].
In the case with construction equipment warranty, as a Heavy Equipment Manufacturer or Construction Equipment Dealership, you would be transferring the risk of your program to an insurer by purchasing an insurance policy. What type of policy? Well that is something for future post!
Be sure to check back as we will be posting on a variety of topics as they relate to construction equipment warranty.