ElI5 How do car manufacturers offer powertrain warranties without losing money?
In: Other
There’s lots of data on long-term reliability of powertrain components, failure rate, repair costs, etc. It’s become trivial to put that data into a model and determine how much it will cost to have a warranty in place for whatever period of time you select. It’s equally trivial to determine the present value of these projected costs, and the anticipated rate of return on reserves set aside to pay these costs over the years. Once you have that information, you know with a fair degree of reliability what you need to charge per car sold to make sure the warranty more or less washes out. In other words, if a car manufacturer knows it will cost them on average $300 in today’s dollars per car sold today, they’ll want to get that $300 (or more) when selling the car. It’s like any other expense that goes into making cars and running a car company – the price of the car has to cover all the costs of the parts, the assembly process (including workers wages), advertising costs, a small share of factory building/tooling/retooling costs, etc. They don’t always get it right, but the successful car companies tend to get it right more often than they get it wrong.
Latest Answers