With both Chrysler and General Motors at a high risk of bankruptcy, consumers have been wary of buying a new vehicle from either struggling car maker because of the question of warranty coverage. President Obama announced that the federal government will now cover warranty repairs on new Chrysler and GM vehicles if the companies become unable to do so.
This plan for the federal government to guarantee Chrysler and GM warranties is a move to boost sagging auto sales, particularly of the two American automakers whose futures are questionable. Both companies have said that bankruptcy would cause the automakers to lose even more sales, as consumers may fear the companies might not be around to cover the warranties and provide post-sales support.
U.S. sales results support their claim. Since the automakers’ first appeal for federal aid in November, they have seen sales drop at least 30 percent in each of the past four months. Sales have plummeted more than 50 percent at Chrysler twice and once at GM. If Chrysler and GM get into such bad shape that the federal government has to pay for warranties, the money will come from TARP.
Jerry Golinvaux, president of Roseville Chrysler-Jeep-Dodge in Roseville, Minn., said that guaranteeing warranties restores some consumer confidence to prospective auto buyers, but fear about the economy has a more severe effect. “The biggest thing that we hear from customers is, ‘Well, we’re not really certain that this is the time when we should be buying a car because there’s so many uncertainties out there in the economy,’” said Golinvaux. “We never really here, ‘We’re not certain whether the auto companies are going to be around.’”
“What this announcement did is it brought General Motors and Chrysler into the game,” said Joe Serra, president of the 15th-largest dealership group in the U.S.. Before the announcement, “We were asked this question, you know, ‘What if?’ And we didn’t really have an answer.”
In addition to guaranteeing warranties, Obama also said he will continue working with Congress to try to fund more scrapping programs. The idea is to bolster new car sales and get people to turn in old beaters for cleaner, more fuel efficient vehicles. The Internal Revenue Service will also start a campaign to alert consumers of a new tax benefit for cars bought between February 16 and the end of the year.
Source: Automotive News