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Warranty Issues in 2017

While the jury is out on whether 2017 will be a peak year for new vehicle sales, elevated OEM warranty and recall costs are likely to continue. OEMs, likely will continue to pay the largest share of these expenses, but suppliers can expect to pay a greater per-vehicle share.

In order to be awarded new business, suppliers typically accept liability for a broad range of costs resulting from non-conforming parts. Therefore, when a warranty issue arises, the supplier needs to react quickly to identify the root cause, contain problems, and establish clean points. The supplier should assemble a claim management team and identify and retrieve the relevant documents from the OEM and the company. Finally, ensure that responsibility for warranty claim management is not fragmented across business organizations.

Moreover, if a claim involves multiple parties, including a tier 1 supplier, an OEM, and a tier 2 supplier, a close working relationship between the OEM and the tier 1 supplier is required to identify and document quality issues early and promptly communicate responsibilities. When a warranty spike occurs, the tier 1 supplier must proactively:

  • Analyze warranty data from the OEM and request additional documentation supporting the OEM’s alleged costs and damages prior to settling warranty claims
  • Understand all contract terms and conditions relating to warranty and recall costs
  • Obtain specific details regarding how liability and related costs were established by the OEM

If a warranty claim involves one or more tier 2 suppliers, the tier 1 supplier must ensure:

  • Contemporaneous notice of the warranty claim is provided to the tier 2
  • Notice of any breach is provided to the tier 2
  • Documentation of root cause(s)
  • Documentary support for alleged damages
  • Witness interviews are conducted
  • Relevant key documents are collected and preserved

At the same time, a risk analysis should be performed and a settlement strategy developed. These steps are critical to ensuring that:

  • The supplier can demonstrate that it should only be responsible for paying a certain portion of the total costs
  • The tier 1 supplier can pass through any costs that are the responsibility of the tier 2 supplier
  • The tier 1 supplier can recover additional damages from the tier 2 supplier
© 2020 Foley & Lardner LLPNational Law Review, Volume VII, Number 27


About this Author

Mark A. Aiello, Foley Lardner, Supply Chain matters Lawyer, Warranty Litigation Attorney

Mark A. Aiello is a partner with Foley & Lardner LLP where he focuses on business transactions and commercial litigation, including business transfer, supply chain and warranty litigation, product development and protection, as well as advising on business governance matters. His experience ranges from representing large businesses in complex matters to counseling small, closely held businesses concerning a wide range of commercial issues. Mr. Aiello is co-chair of the firm’s Automotive Industry Team.

Mr. Aiello has successfully completed a...

Vanessa L. Miller, Foley Lardner, Manufacturing Litigation Lawyer,

Vanessa L. Miller is a partner and litigation lawyer with Foley & Lardner LLP. Ms. Miller’s practice focuses on a wide array of bet-the-company litigation, such as general manufacturing breach of contract and warranty disputes, automotive supply chain disputes, product liability lawsuits, trade secret claims, and railroad and rail transloading facility disputes. Ms. Miller also counsels clients on various commercial contract and product liability issues. She is a member of the firm’s Business Litigation & Dispute Resolution Practice.

John R. Trentacosta, Foley Lardner, Automotive Industry Attorney, Supply Chain Lawyer

John R. Trentacosta is a partner and transactional lawyer with Foley & Lardner LLP. Mr. Trentacosta is actively involved in drafting contracts commonly used in the automotive industry. He frequently represents clients in supply chain disputes, particularly automotive and supplier-manufacturer disputes. He is the chair of the firm’s Complex Supply Chain Litigation Group, former chair of the Detroit Litigation Department and founder and member of the firm’s Automotive and Manufacturing Industry Teams. He also is a member of the Commercial Transactions & Business...

Andrew B. Fromm, Foley Lardner, Government Enforcement Attorney, Compliance Matters Lawyer
Senior Counsel

Andrew B. Fromm is an associate and litigation attorney with Foley & Lardner LLP. He is a member of the firm’s Business Litigation & Dispute Resolution and Government Enforcement, Compliance & White Collar Defense Practices and Automotive Industry Team. As a senior litigation associate, Mr. Fromm represents a wide array of public and private manufacturing companies in commercial contract disputes and negotiations. He also has extensive experience in representing multiple Fortune 500 and private clients throughout all phases of complex litigation involving:...