The current Wired has a long feature by Robert Capps on the significant changes in product testing and warranty service brought about by the combination of highly accurate computer modelling and disclosure laws that force firms to publish details of the costs of their warranty plans. The latter was most interesting to me, as it offers insight into what had formerly been a black box for gadget-watchers.
One of the world’s foremost experts on the cost of product failure lives and works in a fifth-floor apartment on a modest block in Forest Hills, Queens. His name is Eric Arnum, and he runs a one-man newsletter titled Warranty Week. Tall and soft-spoken, he can (and often does) talk about warranty accruals, payment rates, and reimbursement policies for hours without stopping. Most of his days are spent in his small office, working on a vast array of spreadsheets and PowerPoint slides—files that contain detailed warranty information for 1,107 companies. Collectively, these sheets hold perhaps the most comprehensive accounting of product failures on the planet.
Warranty information is one of the most closely guarded secrets in corporate America. Companies are loath to share how much they spend on warranties and why. It’s understandable, as talking about warranties is the same as talking about the fact that your products break when they’re not supposed to. Because of this, nobody just gives data to Arnum. He has to dig it out, one company at a time.
Arnum owes his livelihood to Enron. In the wake of the scandal that took down the energy juggernaut, the Financial Accounting Standards Board made changes to the Generally Accepted Accounting Principals—the rules that, among other things, govern how companies write financial statements. As of November 2002, companies were required to provide a detailed reckoning of their guarantees, including their warranty reserves and payments, in quarterly and yearly filings. The result was that, for the first time in history, someone could look at, and compare, how US public companies handle claims—how much they pay out, how much they hold aside for future payments.