“Doing the right thing” might reduce electric car maker Tesla Motors’ earnings short-term, “but will work out well in the long term,” writes CEO Elon Musk on the company’s blog. In today’s marketplace, I think he’s on the money. What do you think?
As noted in a recent post, “Are warranties withering? Will service contracts surge?,” Tesla has increased the warranty on the drive line of its Model S to 8 years/unlimited mileage (it previously gave coverage for 4-years/50,000 miles). Explaining the thought process behind the move, Musk writes on the blog that:
… the warranty extension will apply retroactively to all Model S vehicles ever produced. In hindsight, this should have been our policy from the beginning of the Model S program. If we truly believe that electric motors are fundamentally more reliable than gasoline engines, with far fewer moving parts and no oily residue or combustion byproducts to gum up the works, then our warranty policy should reflect that.
Over the years, warranty has become a point of fierce competition in several industry sectors. This is, particularly true in the automotive industry. Car makers are contiually expanding warranty coverage in terms of both scope and duration. Several factors have driven this trend. Early on it was the entry of non-US automakers and state and federal consumer protection legislation and initiatives. More recently it has been increased product reliability and advances in technology coupled with decreases in associated costs.
But today, the two factors most responsible for warranty expansion are:
- Ever-rising customer expectations and demands, and
- A heightened commitment to customer satisfaction by some auto companies.
A customer-first warranty approach increases customer satisfaction. This in turn, fosters customer loyalty and enhances brand reputation. And both things lead to increased revenues. Recent research and the Hyundai (positive) and VW/Audi (negative) experiences seem to bear this out.