It seems to me that what I’ll call “The Battle of the Long Parts Warranties” is not going to do anyone any good in the long run — least of all contractors.
It used to be that the standard parts warranty on an residential air conditioning unit was one year, with a five-year warranty on the compressor.
Now however, it’s typical to find standard warranties of 10 years for all parts, as long as the equipment is registered within 90 days of installation. And for most top-of-the-line equipment, registration isn’t even required.
How Long-Term Parts Warranties Affect You
Apparently, longer warranties are a come-on to entice consumers to buy new systems instead of repairing their old ones. But let’s look at how these warranties affect the average HVAC firm.
The first thing to note is that on many service calls, in addition to selling labor (your time), you also sell a part or two. Those days are almost over.
Now, with parts warranties lasting 10 years for most of the life of the
condensing unit or air handler or furnace, all parts on our service trucks are free. Our company trucks can carry upwards of $5,000 in salable parts. Now all of those parts are just an expense instead of a profit center.
When one of your technicians goes on a service call, replaces a part, and turns the bill over to the customer, the customer reminds your tech that those expensive parts are still under warranty. This is the case whether your company installed the equipment or not.
So that portion of the bill has to be deducted. Not only that, but when your tech turns in his paperwork the next morning, he also has to turn in all of the old parts. And they had better be labeled, or things will really get confusing. Those parts have to be separated and taken back to the manufacturer’s rep or wholesaler that handles the brand of equipment the parts came out of. In order to get credit for those parts, paperwork has to be submitted as well. Or a form has to be filed on-line. All of this takes extra time and costs the company money.
You can hope that the tech recorded all the necessary information, but don’t bet on it. The time spent on this task may be the boss’ or the tech’s, but either one of them has better, more profitable things to do. Especially with relatively low-priced parts such as relays and capacitors, it may cost you more to file the warranty claim and return the old part than the part is worth. So you may decide just to eat the price of the part.
Wholesales Are In The Same Boat
The wholesaler is in the same boat. Except for units and supplies, more of their stock is free or less-than-free when warranty paperwork and shipping costs are factored in. These free parts add nothing to anyone’s bottom line. This is all well and good if it’s driving huge volumes of new equipment, but in our current economy an increasing number of consumers are repairing instead of replacing equipment. And the percentage of free parts is only going to get higher.
Some wholesalers are now charging paperwork- or warranty-processing fees if you didn’t buy the equipment from them. These fees are often more than the part is worth. One supplier is charging a minimum of $15 for parts such as contactors and capacitors. The fee for warranty compressors and coils is $100. The fee for motors is $50. More than one wholesaler in my area is charging warranty processing fees and others are talking about it. As this practice becomes more commonplace, are contractors going to pass this expense to consumers? If so, most consumers are going to be upset about it.
What about flat-rate contractors? Flat-rate systems are now reduced to “labor only” systems. You can no longer hide your labor rate from the consumer. When you deduct the part cost from your bill, all that’s left is labor. Of course, you can refuse to honor extended parts warranties, but that consumer likely will never call you for service again if your labor rates are high. How will flat-rate contractors deal with that?
If your competitors offer 10-year parts warranties, you have to offer them as well, in order to keep your customers or get the new equipment sale. You also have to cover parts warranties on all equipment if the sides of your trucks state, “We Service All Brands!”
One supplier recently told me that the equipment gets registered for only one-third of his new equipment sales. That means that the parts warranty is “only” five years for unregistered equipment. Woe to the contractor who forgets to register equipment installations and has to explain why he forgot to the consumer. Or, if you’re leaving it to consumers to register their own extended warranties, do you include instructions on how to do it? If not, then the fault is yours if your customers don’t get the full warranty.
What is Your Responsibility?
How are the manufacturers going to eat the long-term costs of these warranties? OEM replacement parts are becoming very expensive. It may be they are being priced high to help pay for all of the warranty parts that the manufacturers are giving away.
Meanwhile, Equigard has already gone bankrupt. Are more extended warranty companies going to follow? If you sell an extended warranty as an add-on, and the manufacturer or extended warranty company goes bust, what responsibility do you have to the customer? I’m now including a paragraph in my bids that says if the manufacturer refuses to honor their extended warranties, then the customer will have to pay us for the repair instead.
In addition, there are no labor rate increases for the life of the warranty. How many companies go 10 years without a labor rate increase?
One wholesaler in our area is selling 10-year labor warranties for less than $100. How will they pay for that down the road?
Then there are the free outdoor unit replacements for bad compressors. When consumers see that they will have to fork over for a new indoor unit installation when they get their free outdoor unit because the compressor failed, there will be wailing and gnashing of teeth — directed at you.
We just got word that one of our manufacturers is going to offer a three-year and a five-year labor warranty to every consumer who registers his or her equipment for the 10-year parts warranty. Once the labor warranty is sold, the installing contractor gets first dibs on servicing it. If the installing contractor doesn’t like the terms he is offered, the manufacturer asks another contractor in the area if he wants to service that warranty. So you either sign on or the manufacturer will give your customer away to someone else.
Another major manufacturer sells labor warranties at four different labor rates, from $75 per hour to $130 per hour. But then they pay at only $53 per hour on repairs. I don’t know what’s up with that, but I know it’s not good for me.
A Can of Worms
The whole extended warranty thing is just another can of worms. And it’s not just HVAC companies who will have trouble. With almost any consumer gadget, you are offered an extended warranty at the point of sale. We still haven’t gotten over the housing bubble. How will we deal with the extended warranty bubble? This is just another way we are “kicking the can down the road.” Only this can is going to land in contractors’ yards and lay there to rust.
Kevin O’Neill, CM, is the co-owner of O’Neill-Bagwell Cooling & Heating, Myrtle Beach, SC. He has 34 years experience in the HVAC service business, is a 27-year member of RSES. Kevin can be reached at 843/385-2220; or by email at firstname.lastname@example.org.
Homeowners Staying Put Makes the Problem Worse
It used to be people moved every few years, and extended warranties were only for the original owner. Many of those extended warranties would expire when the original homeowner moved. Now, the slow economy is causing more homeowners to stay put for longer periods of time, and those extended warranties are in effect for the full 10 years.
‘Cheaters’ Increase Paperwork for Everyone
Besides just the normal expected parts failures, I have seen some contractors use extended warranties to pad their bottom lines. I know one contractor in our area who seems to replace a capacitor on every service agreement tune-up. The customer doesn’t care about the parts costs if there is an extended warranty. The abuse is even worse with parts and labor warranties. The customer now pays nothing for the repair.
Some of the extended warranty companies are seeing this trend and requiring more paperwork before paying the bills. One warranty company we deal with requires a copy of every tune-up sheet since the system was installed, as well as a wholesale parts invoice and a job invoice signed by the customer, plus their extended warranty form. That’s a lot of paperwork. You may need to hire another bookkeeper just for warranty paperwork.