Homebuilding Industry Warranty Spending is Extremely Low
New homebuilder warranty claims are low, while homebuyer complaints are at an all-time high? 
When buying an airplane, helicopter, a car, a washer or dryer, computer, printer, desk or even an office chair, the percentage of dollars spent by the manufactures on customer warranty issues is greater than that spent by the homebuilding industry on defectively built new home warranty claims.  The percentage of earnings spent by a builder on warranty issues of a new home is as little as 0.3% while Gateway reported 6.2% and Lexmark International, a manufacturer of printers spent 9.7%.  Read the entire series: Warranty Week Six Part Series    

Homebuilding Industry Warranty Spending is Extremely Low
New homebuilder warranty claims are low, while homebuyer complaints are at an all-time high?

When buying an airplane, helicopter, a car, a washer or dryer, computer, printer, desk or even an office chair, the percentage of dollars spent by the manufactures on customer warranty issues is greater than that spent by the homebuilding industry on defectively built new home warranty claims.  The percentage of earnings spent by a builder on warranty issues of a new home is as little as 0.3% while Gateway reported 6.2% and Lexmark International, a manufacturer of printers spent 9.7%.  Read the entire series: Warranty Week Six Part Series

Warranty Week Reported:
The first chart below lists just the 16 builders of site-built homes who reported details of their warranty spending in their latest financial statements. Centex Corp. and Capital Pacific Holdings Inc. reported annual figures, so their warranty claims cost was divided into four equal parts, and what you see below is 1/4 of their annual spending. Beazer Homes USA Inc., meanwhile, reported six month figures, so those claims were divided into two equal parts. It's highly unlikely that warranty claims were exactly the same in two successive quarters, but for the purposes of this column that's what we're assuming. 

In other words, Centex most certainly spent 0.3% of its home sales revenue on warranty over the course of its entire fiscal year.  

Warranty Spending
in the Site-Built Home Market
First Quarter 2003  

(all figures in $ Millions and percent)  

Site Built Homes	Spent	Percent
	on	of
Company	Warranty	Sales
D.R. Horton Inc.	$5.20	0.3%
Centex Corp. (1)	$4.58	0.3%
Meritage Corp.	$1.12	0.4%
Avatar Holdings Inc.	$0.20	0.4%
Dominion Homes Inc.	$0.52	0.5%
Capital Pacific Holdings (1)	$0.41	0.7%
Ryland Group Inc.	$4.25	0.7%
NVR Inc.	$4.83	0.7%
M/I Schottenstein Homes Inc.	$1.41	0.7%
KB Home	$9.40	0.9%
Pulte Homes Inc.	$15.75	1.0%
Lennar Corp.	$15.92	1.1%
M.D.C. Holdings Inc.	$7.05	1.3%
Beazer Homes USA Inc. (2)	$5.66	1.7%
William Lyon Homes	$1.42	2.0%
Arvida/JMB Partners L.P.	$0.80	6.8%
Other	$9.87
Industry Total & Average	$88.4	0.7%

Source: SEC Form 10-Q & Form 10-K 

Notes: 

1. Derived from annual report data, estimated for the first quarter 

2. Derived from six month data, estimated for the first quarter 

3. Derived from nine month data, estimated for the first quarter
   
   Update: Arvida/JMB Partners (6.8%) has been embroiled in a series of investigations regarding defective homes. 

Arvida/JMB Partners developed master-planned residential and resort communities in the southeastern US before electing to call it quits. The communities included homes, townhouses, and condominiums and featured golf courses, tennis courts, swimming pools, and management services provided by the partnership. Arvida/JMB's communities were marketed toward middle- and upper-income residents in Florida , Georgia , and North Carolina … Arvida/JMB is liquidating its assets and preparing to exit the real estate business  

Top 25 Warranty Providers 

Top U.S.-Based Warranty Spenders
First Quarter, 2003
(all figures in $ US millions)  

Warranty-Issuing	Product	Warranty	Percent
Parent Company	Revenue	Claims	of Sales
General Motors Co.	$38,777	$1,096	2.8% (2)
Ford Motor Co.	$34,200	$834	2.4% (2)
Hewlett-Packard Co.	$14,446	$581	4.0% (2)
Dell Inc. (1)	$8,851	$217	2.7%
IBM Corp.	$5,808	$190	3.3% (2)
Caterpillar Inc.	$4,424	$117	2.6% (2)
United Technologies	$4,864	$113	2.3% (2)
Sun Microsystems	$1,930	$106	5.2% (2)
Cisco Systems	$3,901	$80	2.3% (2)
Whirlpool Corp.	$2,716	$76	3.1%
Boeing Co.	$5,697	$69	1.2%
Deere & Co.	$3,071	$58	2.1% (2)
Gateway Inc.	$844	$47	6.2%
Lexmark International	$466	$45	9.7%
Lucent Technologies	$1,798	$44	3.5% (2)
Navistar International	$1,481	$44	3.0% (2)
Maxtor Corp.	$939	$42	4.5%
Paccar Inc.	$1,789	$42.4	2.4% (2)
Applied Materials Inc.	$1,000	$40	4.0%
Honeywell International	$4,619	$35	0.8% (2)
Seagate Corp.	$1,620	$33	2.0%
Maytag Corp.	$1,136	$31	3.1%
American Standard	$1,951	$28	1.5%
AutoZone Inc.	$1,121	$20	1.8%
Brunswick Corp.	$935	$21	2.3%
Source: SEC Filings

Notes: (1) Fiscal Year figures ÷ 4
(2) Percent of warranted product revenue only; no finance, software or service revenue  

Warranty Spenders by Industry Sector  

Reserve: balance as of March 31, 2003
Claims: during the First Quarter of 2003  

Industry Category	Warranty Reserve	Warranty Claims
Automotive	$16.3 b	$2.3 b
Computers	$5.4 b	$1.4 b
Aerospace/Marine	$3 b	$298 m
Heavy Industry	$1.6 b	$279 m
Telecom Equipment	$1.47 b	$276 m
Home & Office Furn.	$646 m	$223 m
Electrical Power Equip.	$1.4 b	$199 m
Semiconductors	$554 m	$146 m
New Homes	$581 m	$126 m
Medical & Scientific	$435 m	$104 m
HVAC/R	$928 m	$97 m
Security Systems	$502 m	$69 m
Total	$32.87 b	$5.7 b

New Home Construction
Warranty Claims & Accrual Rates,
First Quarter 2003 to Second Quarter 2004
 
Source: Warranty Week from SEC data 

  

Warranty Week Full Report: Part 1 - 6