U.S. government to back Chrysler, GM car warranties

To help strengthen Chrysler and General Motors car sales, President Obama announced this morning that the federal government will back their car warranties, in an effort to bolster consumer confidence.

A recent Consumer Reports survey found that more than three-quarters (78 percent) of respondents said they were unlikely to consider buying a new car from an automaker in bankruptcy; 64 percent were very unlikely. Further, more than eight in 10 (82 percent) respondents said they are unlikely to consider buying a new car from a division that is being sold or phased out; 63 percent said very unlikely. (Read: "What happens if an automaker goes bankrupt?")

Specifically, the program will:

Create a separate account that will be funded with cash contributed by the manufacturer and a loan from the U.S. government to pay for repairs covered by the manufacturer’s warranty on each new vehicle sold by a participating domestic auto manufacturer during its restructuring period. The cash contribution will be 125% of the costs projected by the manufacturer to satisfy anticipated claims under the warranty issued on that vehicle.
 
In the event of a failure of a participating auto manufacturer, a program administrator who, together with the government, will identify an auto service provider to supply warranty services.

The Obama administration has rejected the Chrysler and GM viability plans and called for further actions. During an extended restructuring period, the government will “back-stop” the warrantees if an automaker falters.

Any domestic auto manufacturer is eligible to participate in the program.

With this protection, are you more likely buy a car from Chrysler or GM? Use the “Comments” feature below and let us know.

--Jeff Bartlett

Read “Car buyers hesitant to buy from bankrupt automakers” and "Detroit Report Cards."

Comments

[Mike]

I was highly unlikely to buy any of their cars regardless of the shape the companies are in. So this doesn't change a thing for me.

It just reinforces my desire to purchase a vehicle from a company that hasn't been degrading over the years and then comes around begging for a loan when their bad decisions and a bad environment have finally put the squeeze on them. My company would bite the dust and be out business with no one to bail us out. And so it should go for them too.

[Eric B.]

Caveat: My wife and I bought a new Jeep in November, partly because we felt it may be now or never seeing the way Chrysler is headed, and partly to be patriotic.

This is an important and symbolic move, but I don't suspect it will help much. Even if my warranty is honored, despite Chrysler's demise, I would undoubtedly deal with tremendous hassle and red tape. Moreover, ironically, what better way to show a lack of confidence in the auto industry than to put the safety net out?

[Richard VanOrdt]

Around March 14th my wife and I just bought a new 2009 Dodge Charger RT AWD with and expensive $2,500.00 lifetime unlimited warranty. Now we see its a real possibility that Chrysler will go bankrupt. We did it to be patriotic and because we liked the car. Are we going to lose that warranty and or that money??

[Stephen Smith]

I own a GM car and would like to buy another one in the next few months. The warranty backing gives me a little greater comfort in that decision. However, should my two local dealers go away, I would regret my decision. Ownership issues aside, the resale or trade-in value of the vehicle would be near zero!

[lg in mo]

So, the question remains! I also purchased a new Chrysler vehicle in 09, with a fancy lifetime bumper to bumper warranty. Is it worth the paper it is written on?? Am I going to be covered by the backstop the government is offering? What is the definition of "restructuring period," they have been restructuring for years...haven't they? The dealer said that no matter what, the federal government already had in place a guarantee for the manufacturer warranties for 10 years. Does anyone know the answer??

[jamie]

I hope chrysler makes. It would be terrible to see such a big company die. I hope the fiat merger and the bailout money pull through.

[Jerwig]

Our Country is a Constitutional Republic, not a Democracy. Our Constitution does not grant anyone Freedom, it limits the power of govt. to pass laws in certain areas, thus gauranteeing the people freedom in those areas (like freedom Of speech, Freedom of Religion, the right to bear arms etc.). Further, after spelling all the areas where government power is limited in the first nine ammendments of the Constitution, the 10th ammendment says that the Federal Govt. ONLY has powers that are EXPRESSLY granted to it in the Constitution. If a power is not spelled out. the Govt. does NOT have that power. Those powers are reserved to the States and the people. Now, where in the Constitution is the Federal Govt. given the power to OWN banks or auto companies, and to over-rule a company's board of directories, and fire the CEO whom the board of directors hired? Weren't the board of directors elected by the company stock holders?

[Don]

I've got two 2007 Impalas. Both have 60,000 miles on them and have steering and some gauge problems. Ergonomics (e.g. seating, visibility, gauges) don't compare with the Japanese car brands. Regardless of the Big 3's financial condition, I'm going Japanese with my next cars.

I've also got a big problem with the inflated pay and benefits the UAW workers make. Patriotism or not, in the past, it hurt to buy a product where the people who make it earn so much more than I do.

[Tom]

So when the Chrysler owners go to get warranty work done they will be going where? The Dealerships are going to not stock crap right now and unload what they have. I know if it were me I'd bail ship before the government gets involved and F's everyone which always happens. I got a lifetime drivetrain warranty the won't mean squat in 4 years after Obama is gone and the new person stops the program. Going to be another Hugo.

[hyung lee]

what happens in the final periods when you need warranty service, but the dealerships are gone and the company is still in business (barely). How do you get warranty help and does the govt help then? is there a distance limitation that owners are required to drive for help?

[Sue Sanchez]

This article states: Create a separate account that will be funded with cash contributed by the manufacturer and a loan from the U.S. government to pay for repairs covered by the manufacturer’s warranty on each new vehicle sold by a participating domestic auto manufacturer during its restructuring period.

What about cars purchased BEFORE the restructuring? Will their warranties be honored?

[Steven London]

I am considering buying a new Dodge product. All Chrysler products come with a lifetime powertrain warranty. This is the warranty that is backed by the government.

You can also purchase a lifetime service contract for approx $2,200 that will cover most everything else. It is not clear whether or not this service contract will be backed by the government as well.

I made several phone calls to different government agencies and no one knew anything about this. I called Chrysler. They had more information but were unable to answer all of my questions.

If I were Chrysler I would make sure that the people answering the phone had all the facts available. I don't want to pull the trigger on this purchase without knowing the facts.

[Doesn't really matter]

I have no doubt that new companies will spring up to make parts to produce for any car brands that go defunct. This is a consumer-driven world. Further more, and I know I'm in the wild minority, but I just bought a 2006 Chrysler 300. I bought it because I like how it looks and it's, in my opinion, the hottest car out there. So, oh well if the companies go bankrupt. Some new company somewhere will continue to make parts to service the cars, and similarly people like me who just likes how the car looks, will buy when I want to sell. What is all the reactionary panic about? Every car is going to fail inevitably anyway, part by part. Chrysler owners, GM owners, they won't be in any awful position no matter what way this goes. People do have vehicle preferences that they will pursue. I also owned an Oldsmobile and would have bought a old used one if I didn't have enough for a new car. I did enjoy reading all of the other posts and everyone did make good points. I just don't think that it will be such a dramatic outcome.