Optimizing Bus Warranty (2014)

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3 repairs made. The dealer makes the repair at no charge and at the same time is given an opportunity to gain customer satisfaction and repeat business after the warranty expires. Because private dealership survival depends on profit, they are strongly motivated to seek warranty reimbursement for all parts and labor. Circumstances are different in bus garages. Representatives from FTA and local government, who together fund bus pur- chases, impose an oversight function to ensure agencies have a warranty program in place. FTA’s triennial review require- ments for warranty programs are presented in the next chapter. Additionally, FTA’s State of Good Repair initiative and its emphasis on Transit Asset Management places a strong focus on warranty management and recovery. However, unlike automobile dealers, those representatives are not present on a daily basis to make sure each and every warranty repair is fully identified and reimbursed. These responsibilities fall to an agency’s maintenance department, where pressures to submit warranty claims and seek reim- bursements are not immediately pressing job functions in an atmosphere where making bus pull-out the number one priority. In addition, although an automobile customer is likely to insist on having a minor defect repaired under warranty, transit agencies are more apt to focus on more immediate fleet repair needs. As indicated by the survey responses, 68% report there are times when a warranty repair is made but a claim is not submitted. Where the job of warranty is a part-time assignment, agencies simply may not have the resources to determine if warranty coverage is still in effect when repairs are made. Even in cases where warranty coverage is clear, agencies report that they may not have the time to submit a claim and seek reimbursement, especially when warranty repairs are minor. Not seeking warranty in effect becomes a penalty for taxpayers and a benefit for OEMs, because OEMs expect a certain level of warranty and build the corresponding cost into the price of every bus and product they sell. Over time, unclaimed warranty monies legitimately owed to the agency can be substantial. It is within the context of transit’s unique position that this synthesis uses existing literature and a sampling of agencies to PROJECT BACKGROUND AND PURPOSE Warranty is a written guarantee issued to the purchaser of a product by its manufacturer or representative promising to repair or replace that product, if needed, within a specified amount of time or accumulated mileage. Transit agencies typically specify warranty terms, conditions, and coverage periods, often using the Standard Bus Procurement Guide- lines (SBPG) issued by APTA for guidance. The hope is that new buses and related equipment will operate trouble-free throughout the warranty period, especially when full-size buses have a minimum useful life of 12 years and agencies already have their hands full keeping their aging fleets opera- tional. This expectation is rarely, if ever, fulfilled. Regardless of how well a new product is constructed and maintained, faults typically develop within the warranty period that will need to be repaired. Despite its importance, warranty is rarely addressed in transit studies. This synthesis of practice examines how agencies structure the warranty function, especially when certain aspects of transit are unique in contrast to other trans- portation modes. First is the relatively small size of the bus market. An original equipment manufacturer (OEM) auto- maker, for example, builds more vehicles in a single day than a typical North American bus OEM builds in a year. Given low-volume production and low-bid procurements, bus OEMs cannot match the engineering, research and development (R&D), and quality control resources of their automotive counterparts. Additionally, bus OEMs assemble vehicles from parts sourced from many suppliers, as do automakers. However, with much larger supplier contracts, automakers have the financial leverage to influence those suppliers to meet more rigorous quality and reliability standards. Bus OEMs lack such leverage, which can lead to higher initial failures and warranty claims. If warranty is viewed as compensation for a product expectation not met, the process of making the repair and seeking compensation by agencies becomes yet another task in an already long list of everyday jobs needed to meet daily service requirements. Transit is also unique in that there are no corresponding incentives associated with warranty such as there are with automobile dealers. A purchaser of a new car is keenly aware of warranty coverage and insists on having chapter one INTRODUCTION

4 summarize the state of transit bus warranty practice. Doing so will help agencies understand how their warranty pro- gram compares with others, learn from each other’s warranty approaches, and apply what they have learned to optimize their own warranty program and maximize financial compensation. In particular, the synthesis examines the following: • Standard and extended warranty coverage periods • In-house and vendor warranty repairs • Warranty staffing • Warranty training • Tracking warranty coverage periods • Procedures for submitting claims and obtaining reimbursement • Handling warranty disputes • Fleet defects • Special warranty requirements imposed by vendors • Innovative measures to improve warranty efficiency. TECHNICAL APPROACH This synthesis includes a literature review, a survey of transit agencies, and telephone interviews with three agencies selected as case examples. A Transportation Research Information Services (TRIS) search using several different keywords was conducted to aid the literature review, as were literature suggestions provided by the oversight panel. The survey questionnaire was designed to elicit war- ranty statistics directly from those responsible for transit bus warranty. Once the survey questionnaire was finalized and approved by the oversight panel it was posted on the Bus Fleet Maintenance List Serve, which is managed by the University of South Florida, Center for Urban Transportation Research (CUTR), to solicit perspective respondents. Of the 38 U.S. and Canadian agencies that volunteered to participate, 31 com- pleted the survey for an 82% response rate. Table 1 shows the distribution of responding agencies by fleet size. The 31 agencies responding to the survey operate a com- bined fleet of just over 19,000 buses as categorized by four size classifications: • Small—up to 99 buses • Medium—100–499 buses • Large—500–999 buses • Very Large—more than 1,000 buses. The smallest agency represented operates a fleet of 25 buses, whereas the largest has 5,766 buses, providing a broad range of experiences, resources, and leverage. A listing of all participating agencies is attached as Appendix A, sorted by fleet size. A copy of the survey questionnaire is attached as Appendix B. REPORT ORGANIZATION Following this introductory chapter, chapter two summarizes the findings of the literature review, including relevant sections of FTA’s Best Practices Procurement Manual and triennial review requirements and APTA’s SBPG. Warranty materials from the Texas Department of Transportation (DOT) and CUTR, University of South Florida, are also presented. Chapter three, the first of two chapters to present survey findings, examines the state of the practice, with a focus on agency warranty policies that include standard versus extended warranties, vehicle and component warranties, and whether warranty repairs are made in-house, by bus manufacturers, or by vendor representatives. Chapter four examines how agencies manage their warranty programs; in particular, this chapter presents warranty staffing levels, warranty training, claim submittal and reimbursement procedures, tracking methods, and the handling of warranty violations and disputes. Impli- cations regarding fleet defects and add-on components are also examined along with special warranty requirements imposed by vendors including prerequisite technical training and pro- cedures for returning parts, submitting claims, and obtaining reimbursements. Innovative agency and vendor measures to improve war- ranty efficiency are included in both chapters. Because warranty is influenced by available agency resources, chapters three and four present relevant practices by agency size where pertinent, Agency Size (in buses) No. of Agencies Fleet by Type of Bus 40 foot and larger 30–39 foot Under 30 foot Totals by agency size Small up to 99 8 190 192 161 543 Medium 100–499 12 2,509 792 112 3,302 Large 500–999 7 4,455 379 476 5,310 Very Large 1,000 and Over 4 9,633 147 141 9,921 Total 31 16,787 1,510 890 19,076 Source: Survey responses. TABLE 1 RESPONDING AGENCIES BY FLEET SIZE

5 thereby allowing individual agencies to determine how their procedures compare with agencies of similar resources. Chapter five consists of three case examples that examine specific aspects of warranty: • A small transit agency, represented by the Rockford Mass Transit District (MTD) in Illinois with 75 buses has four of its full-time agency personnel cooperatively working on a part-time basis to administer its warranty program. • A medium-sized agency, represented by the Potomac and Rappahannock Transportation Commission (PRTC), that realized that its growing fleet size demands more precise warranty tracking procedures. • A systems approach to warranty in use by Dallas Area Rapid Transit (DART), a large agency, that includes a comprehensive tracking mechanism to ensure it can identify warranty coverage to maximize warranty reimbursement. The synthesis ends with a summary of key findings and suggestions for future research (chapter six). TERMINOLOGY Various terms are used to describe organizations that provide transit services and those that provide vehicles and products. For this study, organizations that provide public transportation services are called “transit agencies” or “agency.” However, in chapter two, “Literature Review,” FTA’s Best Practices Procurement Manual and triennial review documents the term “grantee,” which is retained to reflect FTA’s nomenclature. In this study, the term OEM is used to describe the original equipment manufacturer of buses and major bus components, while the term “vendor” is used generically to refer to any supplier or manufacturer offering buses, major components, parts, and related services to transit agencies. The SBPG, however, refers to the bus OEM as “contractor.”