Mitigating Warranty Risk for Automotive Industry

Warranty is offered by manufacturers as protection and promotional tools. It also gives customers a certain degree of insurance against product failures for a certain period. Although bringing those benefits, it involves various risks originating from various perspectives of the product lifetime cycle. To prepare risk mitigation plans is therefore needed, which is challenging due to the increasing complexity of the product designs and the long warranty period. Accordingly, the decision made to select the mitigation plan involves a high level of uncertainty. This paper develops a plan to mitigate warranty risk based on cumulative prospect theory, which helps warranty decision makers in selecting the optimal mitigation plan.