Editorial: Appearances can be deceptive

When ARN heard a company had been formed to act as an industry watchdog for third-party warranty providers, it sounded (on the surface at least) like something resellers across the country would welcome. But appearances can be deceptive.

The Australian Reseller Association (ARA) is owned by CEO of United Electrical Engineers (UEE), Vern Rickman. And UEE is one of the largest third-party warranty operators in the country.

It's hard to imagine how somebody with a vested commercial interest in third-party warranties can act as unilateral policeman for the same industry.

An association formed to protect resellers from disreputable warranty operators is undoubtedly a noble quest. But the way UEE has gone about championing the cause is, to put it mildly, open to question.

An email sent out to UEE resellers at the beginning of March claimed the ARA would manage a rebate and incentive program while cleaning up the warranty industry and setting down regulations. But the rebate program applies to the sale of UEE warranty products - which makes the ARA little more than a UEE sales tool.

Warranty policies are a vital layer of defence against product failure in any line of business that involves the movement of goods from manufacturer to end-user. In businesses where the products sold have many components - such as the automotive industry and the IT channel - reliable warranty support becomes imperative.

As prices have fallen in the IT industry due to market maturity, many vendors have reduced the length of warranty they are prepared to offer. This has given rise to a very competitive third-party warranty sector. These companies encourage resellers to issue extended product cover as a value-added customer service.

While this has worked well at times, there have also been some horror stories where resellers found themselves seriously exposed. The list of failed third-party providers includes Warranty Works, which left many in the lurch when it collapsed in September 2001. While the circumstances behind its demise may not have been its fault - the company cited outstanding debts from PC assemblers and OEMs as the reason for its downfall - this did not help companies that had sold large hardware orders backed by its warranty services. All of a sudden, they were left facing crippling debts if anything went seriously wrong.

Third-party warranty is a difficult game to get right and anything that can give resellers an extra layer of security must be welcomed by the industry. But any industry body set up with the purpose of providing that protection must be independent - it simply cannot be led by one of the companies vying for reseller business. Read our story 'UEE preaches more industry governance' on page 1of our March 23 issue.