It was a typical drizzly, Pacific Northwest morning back in 1983 when I received a Small Claims Court Summons. A customer was suing us for a differential that we’d rebuilt 10 months earlier, with a “6-month/6,000-mile This-Shop-Only Warranty.”
The customer, now the plaintiff, claimed that we improperly rebuilt her differential. She was seeking payment of the repair bill from a second shop, for more than we originally charged.
To me, the case was simple, and we’d have no problem winning.
- If we’d done something wrong, it wouldn’t have lasted as long as it did.
- Our warranty had expired and clearly stated that it was only valid at our shop.
- She didn’t bring it back to us, so we didn’t get to see the damage and possibly fix it, as we’d often do if we felt we were responsible even when warranties had expired.
- By the customer taking it to a different shop, we were deprived of that opportunity.
- Without seeing it, how do we even know the second shop’s opinion was correct?
To our surprise, the judge ruled for the plaintiff and offered the following explanation.
- Because the warranty had expired, that agreement was no longer in force.
- The customer was no longer bound by the warranty agreement and therefore not required to return to our shop.
- He asked, “How would the customer know you’d possibly fix the “out of warranty” problem?”
- There was no evidence of a collusion between the second shop and the customer.
- In his opinion, it wasn’t reasonable that a differential would fail that soon if properly rebuilt.
While The judge didn’t order us to pay the second shop’s bill, he directed us to refund most of the original purchase price. That was the day that I began my study of warranty law.
A Brief History About Warranties
Guarantees and warranties began with the promises made by the pitchmen with traveling wagon shows. The pitchman made promises like, “This magic potion will cure whatever ails you, in 10 days, or your money back!” 10 days later, he’d left town along with your money.
Even my dad made a guarantee when he fixed my broken toys, “Here you go son. It’s guaranteed not to rip, wear, tear, or smell bad in hot weather.”
By the late 1800s, business owners began organizing to combat false and misleading marketing practices, and in 1912 the Better Business Bureau was officially founded. In its early days, the BBB primarily focused on deceptive advertising.
Still, it took decades before authorities began to challenge the prevailing concept of “Caveat Emptor” (Let the Buyer Beware). Under Caveat Emptor, the buyer was responsible for doing their own research and weighing the pros & cons before buying. The seller had no responsibility for postpurchase problems. The only exception was seller misrepresentation – fraud.
A new way of thinking evolved, recognizing that the business had an unfair advantage. This led to a consumer-friendly concept, “Caveat Venditor” (Let the Seller Beware), giving rise to Implied Warranties to protect consumers.
Implied Warranties are unwritten and not optional for the sellers. They’re governed by the states and based on the Common Law principle of “Fair Value for Money Spent.” The guiding principles were memorialized in the Uniform Commercial Code (UCC) in 1952.
- Warranty of Merchantability – The product or service will function properly for a reasonable time.
- Warranty of Fitness for a Particular Purpose – The product or service will perform as described for a specific purpose.
- Sellers’ promises applied to the condition of the product or service at the time of the purchase, but not how long it would last.
- Buyer has up to four years to discover defects, but it doesn’t mean it has to last 4 years.
- It must be of normal durability considering its nature and price.
- Exclusions include abuse, misuse, improper maintenance, and normal wear and tear.
The vague nature of the Uniform Commercial Code and Implied Warranty were a concern for the auto repair industry then, and still are because they remain in effect today, To protect themselves, shops began offering Express Written Warranties. Some states allowed shops to disclaim Implied Warranties in their Express Written Warranty. These warranties include:
- Protection for the consumer and the shop by saying what is and isn’t covered.
- Explanation of how the customer makes a claim under the warranty.
- Disclaimers on all or some aspects of Implied Warranties.
- Exclusions for certain types of failures, incidental, and consequential damage.
- Explanation of the customers’ responsibilities. However, State-to-State interpretations made uniform enforcement difficult.
The Magnuson – Moss Warranty Act of 1975 was passed with the aim of bringing State and UCC Regulations into alignment under one single federal act. It had a 4-fold purpose.
- Ensure full disclosure of terms and conditions.
- Allow consumers to compare price, features, and warranty coverage before buying.
- Incentivize companies to fulfill their warranty obligations and provide a written agreement for dispute resolution.
- Encourage sales promotion and competition based on warranty coverage.
However, some states refused to relinquish their authority over oral and implied warranties, so Federal Law applies only to written warranties.
Note, if you do not issue a written warranty, State and UCC regulations prevail.
Today’s Situation
Today, most shops use written warranties on major repairs, and their warranties comply with Magnuson-Moss. Whether it’s the ATRA Golden Rule Warranty or one you’ve cobbled together by copying from other companies, chances are your written warranty does the job for you.
However, today’s vehicles may exhibit serious symptoms while not requiring a rebuild. They come in with transmission malfunctions but don’t even have a transmission problem. Targeted mechanical, computer, and electronic repairs are becoming more common than at any time in our history. To make matters worse, these repairs often run into thousands of dollars, and the customer reasonably expects a warranty.
This raises the question, “How do you protect your customer and your shop when you perform targeted repairs?” If something goes wrong, you were the last one to touch it, so customers often think you’re responsible.
• You can’t issue a transmission rebuild warranty because you didn’t rebuild it.
• You can’t predict how long the repair, or the transmission itself is going to last afterwards.
• You shouldn’t take the risk of issuing a vaguely written warranty or relying on the vague interpretations of the Implied Warranty statutes described earlier.
Does the Doctor Have the Solution?
No, I’m not saying to bury your mistakes! But we can use what the medical profession calls Informed Consents. If you’ve ever had surgery, you most likely signed one.
Informed Consent for surgery ensures that patients understand the risks, benefits, and alternatives of a surgical procedure so they can make informed decisions.
- The medical staff explains the procedure, why it’s being performed, and what to expect.
- Patients sign an Informed Consent Form stating they understand the procedure, why it’s recommended, expected results, risks, and that they’ve had a chance to ask questions.
The risks include things like unsuccessful results, complications, injury, and even death from both known and unforeseen causes, and that no guarantee is made as to results or cure.
Informed Consent Warranties in Your Shop
Here are some simplified “Informed Consent Warranties” you might consider using. I’d suggest that you add them as “canned warranties” in your shop management system to either print or include within the body of repair orders as circumstances dictate.
- What if for some reason you don’t want to offer a warranty? I call this the “I know better, but I’m going to do it anyhow warranty.” Good news, it’s a myth that you must give a warranty on all repairs. But you must give a reason and disclose it in writing.
“No Warranty”
The customer declined the service/repairs we recommended after we performed our diagnostic inspection.
The customer has requested that we perform the services/repairs described in this repair order and has further agreed to accept all risks associated with the results.
We have advised the customer that we cannot guarantee the results, and therefore there is NO WARRANTY.
- Sometimes, the only way you’ll know if a targeted repair will fix the problem is to try it. But how can you reassure the customer while protecting the shop?
“Diagnostic Repair Warranty”
We have completed our diagnosis of the customer’s vehicle and have informed the customer that we cannot predict if the parts and labor described in this repair will resolve the problem. Due to its diagnostic nature we won’t know if the repair will succeed until we do it.
Based on our diagnosis, as shown in our inspection report, we’ve told the customer that we believe it’s worth the risk to try the diagnostic repair(s) to try to save them money, and the customer has agreed to accept that risk.
However, even if the repair(s) are unsuccessful, or fail while the customer still owns the vehicle, we will credit (___% – $_____) of the labor charged on this repair order toward the necessary repair(s) at that time. Warranty repairs must be performed at this shop.
We have explained these conditions and limitations of the warranty, and the customer agrees to accept the associated risks.
- When you’re confident that the targeted repair will resolve the problem, consider a little stronger warranty to justify the price.
“Targeted Repair Warranty”
We have informed the customer that the repairs described in this repair order are not fully warrantied because we are not rebuilding or replacing the transmission. This “Targeted Repair Warranty” is subject to the following conditions and limitations.
Our diagnosis indicates that the “Targeted Repairs” we are recommending and performing will correct the symptoms that the vehicle is exhibiting, as described in the inspection report.
We’ve advised the customer that we cannot predict how long the repairs will last. However, for as long as the customer owns the vehicle, if the “Targeted Repair(s)” fail, we will credit (___% – $_____) of the labor charged on this repair order toward the necessary repair(s) at that time. Warranty repairs must be performed at this shop.
We have explained these conditions and limitations of the warranty, and the customer agrees to accept the associated risks.
The Features and Benefits of Informed Consent Warranties
- They don’t expire. Remember, after a warranty expires, the customer isn’t bound by its terms or conditions, and the Implied Warranty rules of discovery may kick in for up to 4 years.
- They explain what you’re doing and why. This addresses the, “I don’t remember” scenario.
- They say what you’ll do if it fails. You choose whether to offer a percentage or fixed dollar warranty credit. It takes the guesswork of the “what to do if” scenario.
- They limit the shop’s exposure to lawsuits. As with the doctor, the customer has been informed of the risks, and they’ve given their consent.
- They help keep customers for life. They have a financial incentive to return it to you for as long as they own their car. This keeps them out of competing shops and gives you the chance to do future repairs with a modest “preestablished” warranty credit.
When done right, warranties build value and create long-term customer relationships. If you have any questions, please email to coachthom@gmail.com or call (480) 773-3131.
