MOST PRODUCTS AREN'T manufactured by just one entity — they're made up of components from a wide array of manufacturers, then assembled or installed by the final stage manufacturer or OEM.

Due to the dynamics of the relationship between the component parts manufacturer (CPM) and the OEM, problems can arise, especially regarding warranty of parts and product. So the relationship between the OEM and component manufacturer becomes critical, in the context of warranty complaints and warranty litigation, according to Holly R Stevens of Segal, McCambridge, Singer, & Mahoney Ltd in Chicago, Illinois.

She says the problem in many cases is that the OEM is not working closely enough with the component manufacturers when there is a warranty complaint. By the time, an action is filed, it is often too late — the consumer is already upset and unable to be appeased. Thus, it ultimately becomes a customer service issue. Too many times there seems to be misdiagnoses occurring or a customer's complaint cannot be duplicated as the system spits out a “no problem found.”

The key, she says, is to create a process that will prevent consumer dissatisfaction and prevent consumers from seeking out the “plaintiffs' advocates” of the legal community, thereby saving the company not only its own legal fees but that of the consumer. So the question is, how can we bring the OEM and the component manufacturers together in an effort to decrease warranty complaints and litigation?

Under the Magnuson-Moss Warranty Act, a “consumer who is damaged by the failure of a supplier, warrantor, or service contractor to comply with any obligation under this chapter, or under a written warranty, implied warranty, or service contract, may bring suit for damages and other legal and equitable relief.” The Act defines a supplier as “any person engaged in the business of making a consumer product directly or indirectly available to consumers.” Not only are OEMs liable under the Act, but component manufacturers also can be liable.

However, component manufacturers are only directly liable to a consumer under the Act if the component manufacturer's warranty is expected to be given to the consumer. Where a component manufacturer's warranty is given to the OEM and is not intended to be conveyed to the consumer or brought to the consumer's attention, the component manufacturer is not liable under the Act. This is because the component manufacturer's warranty is not a basis of the bargain and therefore not a written warranty under the Act.

Unfit quality of product

She says courts have held that the manufacturer of a product that causes injury is liable for breach of warranty, regardless of the fact that the defective nature of the product was caused by a component made by another and incorporated by the manufacturer into the product. This is because the essence of the action is the unfit quality of the product, and the identity of who caused the defect is of no consequence.

So the question becomes, how can the OEM and the component manufacturer better work together to resolve warranty complaints prior to and once suit is filed? She says that in order to answer this question, we need to look at it from both perspectives and determine each party's goals and needs from the relationship.

  • OEM.

    Vis-à-vis the component manufacturer, the OEM takes on the role of consumer. It relies on component manufacturers to provide a good product that works as it's supposed to; technical service to correct any problem that may arise; consistent quality; and better support when there is a defect or error, including sharing of information and cooperation in its repair.

  • Component manufacturer.

    The Component manufacturer seeks to sell its product, and to grow the relationship and allow them to sell additional products to the same OEMs, including new opportunities and new product lines.

She says a practical way to address the relationship is to create a partnership-like relationship between the OEM and component manufacturer. This requires better communication between the parties. OEMs and component manufacturers must tell each other exactly what role they want the other party to play, including exactly what is expected and desired. They should meet to discuss problem-solving techniques on warranty issues. Both parties must learn everything about the component part that is being installed; including how it is made and its precise functionality for the final product. A system of reporting errors should be created that allows the information to flow from the dealer or seller directly to the component manufacturer. This would make sure that the component manufacturer obtains the exact nature of the problem instead of the information being filtered through several entities and watered down. Then once the information has been obtained, the two can work together to determine the exact nature of the problem.

A working system instituted by a component manufacturer is a “come see” process. The component manufacturer visits dealerships and actually goes through the diagnosis process with the service technicians. This allows them to see the actual diagnostic tools and the process used to diagnose warranty issues with their components. It also gives them actual working knowledge of how things are determined and serviced. This process has actually cut down on the number of times a “no problem found” is generated in diagnoses.

This example shows how familiarizing both parties with the diagnostic procedures to determine the exact nature of the problem and the repair process helps prevent misdiagnosis and increases customer satisfaction. This also requires that both parties receive training on how to address and repair warranty issues.

Other avenues

Another option is to link warranty issues to product development in an effort to reduce warranty complaints in the future. This would prevent recurring problems and complaints.

Another avenue is to avoid finger-pointing during the litigation. This means avoiding third-party litigation, which only aids the plaintiff's case.

This can be accomplished through various methods: for instance, incorporating “stand still” agreements between OEMs and component manufacturers. This would entail both parties agreeing to work out the details separately after the litigation. The terms of this agreement should specifically set forth when and how it is to be accomplished. For instance, if an OEM is certified as a qualified vehicle modifier, then a component manufacturer cannot then come back and argue that it is not responsible because the vehicle was modified. In order to avoid this situation, the standstill agreement would set forth the requirements for resolving the dispute. This could include an arbitration agreement. For instance, in the RV community, many OEMs have arbitration agreements with their component manufacturers. She says she encourages everyone to review these agreements and make sure that they adequately fulfill their function. Do they name the accurate entities? Do they set forth a specific time frame for filing a claim? Do they address all the necessary limitations between the parties?

Finally, the component manufacturer should and can provide more litigation support, working with the OEM in defending warranty litigation. This is accomplished through inspections and analysis of complaints, as well as providing information as to the actual component. Component manufacturers are also valuable experts on the parts they design and produce and can assist in the development of defense theories and arguments. This route is more effective to the overall litigation and helps avoid any third party litigation.

A better relationship between the two parties allows for a better end product. As products become more and more complicated with more and more parts and technology, there is more likelihood of defects and errors. By working together the OEM and component manufacturers can help stave off customer dissatisfaction. The essence of warranty litigation comes from customer satisfaction. Therefore, customer service is an integral factor in warranty litigation.

But she says customer service runs down the line. It begins with the seller or the dealer and flows to the OEM and ultimately the component manufacturers. By creating a more symbiotic relationship between the component manufacturers and OEM, there is greater customer service and satisfaction and less likelihood of warranty litigation.