Extended warranties create extra value for customers on the front side of the equipment purchase," says Leigh Dennis, CEM, heavy equipment service manager with Fowler Contracting in Cary, N.C. The Fowler equipment team realized just how much value they create in the absence of extended warranties on about 100 units.
"Steve Fowler, our company's owner, has always been a big believer in buying extended warranties," says Robbie Martin, CEM, heavy-equipment general manager. "They only cost a percent or two of the purchase price of the machine, but for a lot of years we never needed them, so we decided not to buy warranties."
A company expansion plan had Fowler buying 150 machines between January 2004 and May 2005. Nearly 100 of them had no extended warranty.
"We were relyingon the manufacturers' promised quality," says Dennis. "We thought we could force the issue with dealers if our record keeping was good enough to spot problem trends."
"Problem is, that kind of thinking tends to put us at odds with the dealer," says Martin, "and we really need to be on the same page with them."
"We started to feel the sting as the basic warranties expired on most of the machines we bought without extended warranty," says Dennis.
"We've already paid dearly for those units," Martin adds. "The downtime was just staggering. It just kept coming and coming and coming."
Equipment-buying policy quickly reverted to include extended warranties on everything.
Martin and Dennis suggest the problem Fowler faced reflects the pace of technology adoption in off-road equipment, pushed largely by diesel-emissions regulations.
"Manufacturers have had to develop technologies quickly — they don't have time to test them on all the different applications," Dennis explains. "It really doesn't matter which manufacturer — there's only so much they can do to get an engine ready to go to market.
"Take Cummins, for example. They have so many different applications for one basic engine block. The 8.3-liter they have goes into excavators, rollers, loaders, trucks, and boats. The engine manufacturer can't test all of those different applications under all conditions. But I guarantee you that such an engine is going to be tested to the max in one of our compaction rollers because of the intense vibration."
Martin and Dennis consider Fowler's investment in extended warranties to be part of the price the industry collectively is paying for the transition to new technologies.
"We started to notice the need for extended warranties at about the same time the manufacturers cut their product development time," Dennis says. "Where it used to take years to take a machine from the drawing board to putting it in field, now it can be done in months. Applied technologies change so rapidly that as new models are introduced, system upgrades are already available.
"Some manufacturers can no longer afford to employ journeymen technicians to assemble components into the final product," says Dennis. "Short-term contract laborers are employed in order to help keep the price of the product in the price range of the target market. This is another important reason to strongly consider extended warranty."
One of Fowler Contracting's advantages is that the firm puts a lot of hours on multiples of some key machines so Martin and Dennis can identify trends. For example, the company fields 37 35-metric-ton excavators, 22 20-metric-ton excavators, 16 Caterpillar D6R dozers, and 61 soil-compaction rollers all closely configured to achieve fleet standardization.
"We're seeing repeated problems with the machine and power-train ECMs in conflict with each other," Dennis says. "Things don't always integrate like they should after two or three years of hard work. All these electronics haven't withstood the test of time yet."
"There are just so many problems with all new integrated technologies that the manufacturers can't see coming, and with the added GPS monitoring systems and grade controls, there is more opportunity for something to go wrong."
Trends aren't limited to electronic problems, though.
"There's a certain fan-hub assembly that we know the fan bearing is going to go out on between 500 and 4,000 hours," Dennis says. "And when it does, that fan takes off like a propeller and flies right through the oil coolers, radiator, and air-conditioning condenser."
Fowler added a preventive-maintenance manager, a field-service technician, a welder, and two service trucks to help maintain and keep track of the expanded fleet. The company had no shop facility for its off-road fleet so they leased one, but they continue to service and repair most machines in the field. With the firm's repair and maintenance resources thoroughly utilized, extended warranties on the machines added since then have been crucial to managing service labor.
"When you have that many machines out in the field, if you didn't purchase extended warranties, your mechanics' time might all be used diagnosing and correcting minor bugs or premature failures instead of preventing longer-term problems," Dennis says. "If the whole service crew is doing repairs, the opportunity cost is huge.
Complying with manufacturers' maintenance expectations is essential to preserving warranty coverage. Dennis says you also have to be able to document and retrieve information from inspections, fluid analysis and repairs.
"Identify the trends — both good and bad," Dennis says. "This does several things: First; it follows the terms of the extended-warranty agreement. Second; it builds your history and provides the data you need when repair/replace decision-making time arrives. Third; it helps identify trends in both normal wear and tear and premature component failure."
Fowler's record-keeping is an asset. It helps pass technicians' understanding of machines and machine histories to other members of the firm's equipment team so that information can be used to negotiate the best deal for Fowler.
"Intimate knowledge of machines, models, serial number ranges, and their common attributes is one thing that sets us apart from the rest," Dennis claims. "Our combination of documented hard evidence, credibility, and purchase of extended warranty gives us formidable negotiating power amongst dealers and manufacturers.
Dennis says the extended warranties alone improve Fowler's relationship with dealers."When you call the dealer with a problem, the first thing they ask is: 'Is the machine under warranty?'" he explains. "If you have an extended warranty, you often get put on top of the dealer's repair list, and they're willing to work with you on a loaner machine or a low-cost rental if you need a re-placement."
Dennis says the warranty is an investment in the equipment triangle that the Association of Equipment Management Professionals describes as equipment users, dealers, and manufacturers working together to put construction equipment to work profitably. Records of a warranted component’s premature failure go directly to the manufacturer’s database and are used to evaluate the design.
“You’re working together with the dealer and the manufacturer to improve that line of machines over time,” Dennis says. “Information that manufacturers can gather from doing our extended warranty repairs is more technically reliable within their systems. They are therefore more likely to efficiently improve the product lines we use.”