Warrantech Corporation - Company Profile, Information, Business Description, History, Background Information on Warrantech Corporation

150 Westpark Way
Euless, Texas 76040

History of Warrantech Corporation

Warrantech Corporation operates as a third-party administrator of extended warranty services, providing its services to distributors, manufacturers, and retailers. Warrantech does not pay the claims covered by its contracts. Instead, the company locates insurance companies that underwrite the warranty-extension and product-replacement contracts it sells. The company's business is divided into two divisions--automotive, which operates domestically, and consumer products, which operates both domestically and internationally. Warrantech's automotive business consists of marketing and administering vehicle service programs that offer coverage for terms ranging between three months and 84 months. The company's consumer products segment develops, markets, and administers extended warranties and product replacement plans for a range of household appliances and consumers electronics, such as televisions and computer equipment. Part of Warrantech's consumer products division also includes home warranties, which cover the mechanical breakdown of home systems such as plumbing, heating, and air-conditioning systems. The company's international segment markets and administers both automotive and consumer products services overseas. Through foreign subsidiaries, Warrantech operates in Puerto Rico, Guatemala, Chile, and Peru.


When Joel San Antonio and William Tweed founded Warrantech in 1983, it represented an unusual career change. The pair managed Little Loraine Ltd., a company that San Antonio had founded in 1975. For the next seven years, San Antonio served as president of Little Loraine, hiring Tweed in 1976 to serve as his vice-president. The two executives remained at Little Loraine until August 1982, when they began developing plans for Warrantech, a third-party contract extension and warranty vendor. Considering that Little Loraine produced women's apparel, the foray into the warranty and contract extension business was a tangential move by San Antonio and Tweed. The career change proved to be a lasting one, however, occupying the two executives' attention for the ensuing two decades.

Warrantech's service contracts, extended warranties, and replacement contracts typically covered terms ranging from three months to 84 months. The company operated as a third-party administrator, acting on behalf of dealers and insurance companies. In its role as a third-party administrator, Warrantech's responsibilities excluded either performing repairs or providing replacement products. Independent, authorized repair facilities or dealers provided such services. The cost of the repairs or the replacement products was typically incurred by the insurance companies.

The services provided by Warrantech varied according to the type of contract offered by the company. During its first decade of business, the company operated in two business segments: automotive and consumer products. Through its automotive segment, Warrantech marketed and administered vehicle service contract (VSC) programs to automobile and motorcycle dealers, leasing companies, and repair facilities. A VSC was a contract between the dealer and the consumer that offered coverage for a term ranging between three months and 84 months. Warrantech processed VSC's produced by a dealer and administered the paying of claims according to the terms of the VSC, costs that were borne by insurance companies. Warrantech's consumer products segment developed, marketed, and administered consumer product extended warranties and product replacement plans developed for household appliances, televisions, computers and home office equipment, as well as a number of other electronics products.

It took several years for Warrantech to begin recording any appreciable growth. By 1988, five years after the company's founding, its sales amounted to a mere $6.2 million, a fraction of the revenue volume Warrantech would record in a few short years. The company's fifth year of business marked a turning point, the year in which the company began to register substantial growth. The year also marked San Antonio's appointment as Warrantech's chairman. San Antonio had served as president and chief executive officer of Warrantech since its inception. When he was selected as chairman, he retained his post as chief executive officer but passed the presidential duties to Tweed, who had served as the company's vice-president since its inception.

Warrantech's rapid revenue growth during the late 1980s occurred largely because the company began greatly expanding it customer base. Before the company began fleshing out its roster of clients, it drew the bulk of its revenue from automobile contracts, which included servicing the business of automobile manufacturers such as BMW of North America. Although automobile contracts served as Warrantech's main source of revenue, the business segment did not provide the company with a wealth of opportunities for expansion. The company's consumer products segment offered such opportunities, providing the company with the means to pursue a path of expansion. In the years ahead, automobile contracts would continue to account for the majority of Warrantech's revenue, but its greatest growth would be achieved through consumer products contracts, which covered traditional products such as televisions and videocassette recorders, as well as more esoteric products, such as laser pointers and mood rings.

Late 1980s Expansion

As Warrantech aggressively sought more consumer products customers, it also expanded its business through acquisitions. In 1989, when San Antonio also was appointed chairman and chief executive officer of Warrantech's principal operating subsidiaries, the company acquired Dealer Based Services Inc., a Euless, Texas-based automobile service contract supplier. In 1991, the company also acquired a controlling stake in Minnehoma Insurance Co. The acquisitions represented only one facet of the company's broad-based strategy for building its service-contract business. To invigorate contract sales, the company implemented training programs and specialized marketing tools, including contract forms and point-of-purchase displays. More significantly, the company formed a 35-employee division based in Fort Worth, Texas. Called Warrantech Direct, the division was formed in 1990 to strengthen the company's telemarketing efforts.

As Warrantech's tenth anniversary neared, its annual revenue totals began to increase with decided vigor. By 1990, sales had grown to $30 million, far more than the $6.2 million recorded two years earlier. In 1991, sales leaped to $56 million. Of the total registered in 1991, $40 million was collected from the company's automobile contracts, with the balance derived from the company's consumer products contracts. The company's client base, after several years of concerted expansion, included catalog retailers such as Sharper Image and Damark. The company also had forged business relationships with traditional retailers, such as department store operators Stern's and Abraham & Strauss and mass merchandisers such as Tops Appliance. The company conducted business with specialty electronics chains as well, such as the 11-store chain RogerSound Labs Inc. Warrantech gained RogerSound as a customer in 1986. By the beginning of the 1990s, RogerSound's management, led by president and chief executive officer Murray Dashe, was convinced of Warrantech's value as a third-party warranty company. In a December 23, 1991 interview with the trade publication HFD--The Weekly Home Furnishings Newspaper, Dashe noted, "They're [Warrantech] a quick-moving company that can act in a more entrepreneurial mode, and they're not hamstrung like many larger companies."

Warrantech completed its first decade of existence occupying a favorable market position. Although the company's sales declined to $50.6 million in 1992, the mood at company headquarters in 1993 was buoyant. The company found itself facing less intense competitive pressures during its tenth anniversary, as the number of its rivals diminished. In a March 8, 1993 interview with HFD--The Weekly Home Furnishings Newspaper, San Antonio shared his observation of the dwindling number of competitors vying for market share. "Three or four years ago, there were about 25 warranty companies at the Consumer Electronics Show," he remarked. "At the last show there were four."

The reduction in competition left Warrantech in the position to grow, a stance that the company assumed with an aggressive posture. To take advantage of the situation, the company made several moves that pointed to its commitment to growth. In Dallas, the company began developing a sales-training complex, a 5,000-square-foot facility that represented a $250,000 investment. Warrantech also began marketing new service-contract products and expanded its telemarketing staff, increasing Warrantech Direct's staff to more than 60 employees. Nevertheless, the most significant event of the year arrived through a joint venture agreement.

In early 1993, Warrantech signed an agreement with American International Group, Inc. (AIG), an $18 million-in-annual-sales insurance company with operations in 130 countries. Under the terms of the agreement, Warrantech operated as the administrator of service contracts and AIG provided the underwriting. As part of the agreement, AIG purchased a 20 percent stake in Warrantech, paying $6.4 million to consummate its affiliation with the third-party warranty company. To spearhead the company's new overseas business, Warrantech International Ltd. was established in Northampton, England, where the company began offering three- and five-year contracts covering consumer electronics, major appliances, home office products, and computers. The warranties were sold on a private label basis or under the new Warrantech International brand.

The ultimate goal of Warrantech International was to lead its parent company's expansion into other parts of Europe and other continents. As the 1990s progressed, Warrantech International fulfilled its objective, transforming Warrantech into a multinational concern.

Warrantech in the 21st Century

Warrantech's geographic reach was extended into Canada, Puerto Rico, and Latin American by the time the company exited the 1990s. By this point in the company's development, it was regarded as a leader and innovator in the field of service contracts and extended warranties, holding sway as one of the largest independent service-contract companies in the United States. In addition to expanding geographically, the company also had expanded the range of services it provided. For example, the company entered the real industry by providing home warranties, which were administered through a subsidiary, Warrantech Home Service Co.

As the company's 20th anniversary approached, there were numerous reasons to suggest that the arrival of the milestone would find the company's management in a celebratory mood. In June 2001, Warrantech renewed a long-term contract with one of its major consumer products clients, BrandsMart USA. In December 2001, the company renewed a long-term contract with another major consumer products client, Ultimate Electronics, Inc. In July 2002, the company renewed its third major contract, signing a three-year extension of its business agreement with Micro Center, the Hilliard, Ohio-based retail arm of Micro Electronics Inc., a leading provider of computers and peripheral products.

On the heels of the contract extension with Micro Center, Warrantech announced it was relocating its corporate headquarters. In August 2002, the company signed a ten-year lease agreement in the city of Bedford, Texas. Warrantech announced it was moving to a new 56,700-square-foot facility that was expected to house its executive, marketing, and administrative personnel. The new facility was also designed to house a direct-marketing operation capable of containing a 400-seat call center. Warrantech executives anticipated moving into the new facility in October 2002, giving the company a new home for its 20th anniversary.

Principal Divisions: Automotive; Consumer Products.

Principal Subsidiaries: Warrantech Consumer Product Services, Inc.; WCPS of Florida, Inc.; Warrantech Automotive, Inc.; Warrantech Automotive of California, Inc.; Warrantech Automotive Risk Purchasing Group, Inc.; Warrantech Automotive of Florida, Inc.; Warrantech Direct, Inc.; Warrantech (UK) Limited; Warrantech International, Inc.; WCPS of Canada, Inc.; Warrantech Automotive of Canada, Inc.; Warrantech Europe PLC (England); Warrantech Additive, Inc.; Warrantech Home Service Company; Warrantech Caribbean Ltd. (Cayman Islands); Warrantech Home Assurance Company; Repairmaster Canada, Inc.; WCPS Direct, Inc.; WHSC Direct, Inc.; Warrantech International de Chile; VEMECO, Inc.

Principal Competitors: Automobile Protection Corporation; Federal Warranty Service; BancTec, Inc.


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