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U.S. taxpayers guarantee auto warranties
San Francisco Chronicle


April 01, 2009

President Obama this week added warranties on new General Motors and Chrysler vehicles to the growing list of products being guaranteed by U.S. taxpayers.

Obama is hoping the temporary guarantee will jump-start GM and Chrysler sales by reassuring buyers that even if the automakers go bankrupt or disappear, consumers will be able to get their cars serviced under the manufacturer's new-car warranty.

In a recent survey by Consumer Reports, 78 percent of respondents said they were unlikely to consider buying a new car from an automaker in bankruptcy, and 82 percent said they are unlikely to consider buying a new car from a division that is being sold or phased out.

The guaranty program could alleviate some, but not all, of their worries.

"The warranty is one of the concerns. Depreciation is another," says Jeff Bartlett, deputy online automotive editor with Consumer Reports. "Cars would depreciate at a more rapid rate if the automaker or division went out of business."

Even if funds are there, it's not clear who, exactly, will provide service if dealerships go out of business and whether parts for out-of-production cars will always be available.

The White House says the program "will cover all warranties on new vehicles purchased from participating auto manufacturers during the period in which those manufacturers are restructuring." The program is open to any domestic automaker.

For General Motors and Chrysler, which have agreed to take part, this restructuring period started Monday and will continue until the automaker "has either secured permanent financing or emerged from Chapter 11 through a sale of its assets or a confirmed plan," a White House spokeswoman says.

Automakers and the government will set up an account and contribute funds totaling 125 percent of the expected cost of servicing warranty claims. The automakers will put in 15 percent of the anticipated cost and the Treasury Department will put up 110 percent as a loan.

If an automaker failed, the program would appoint an administrator who will "identify an auto service provider to supply warranty services." The fund would pay for covered repairs.

It's not clear whether consumers would have a choice of repair shops. "It might be something like a health care plan where you have to go to an in-network provider," says Jeff Schuster, executive director of forecasting with J.D. Power and Associates.

If an automaker failed, taxpayers could be on the hook for years.

In addition to its basic warranty, which covers most repairs for three years or 36,000 miles, whichever comes first, Chrysler offers a lifetime drivetrain warranty on all models. The power train warranty has no mileage limit and covers parts and labor to repair the engine, transmission and drive system. Chrysler's power train warranty cannot be transferred to a second owner.

General Motors typically offers five-year, 100,000-mile drivetrain warranties in addition to its basic warranty.

The White House says the guarantee will cover all warranties included in the manufacturer's new-car warranty.

Karl Brauer, editor in chief of, says GM and Chrysler are offering such good deals today that consumers who need a new car should consider one.

"It's clear the government isn't going to let these companies disappear," he says.

GM "is clearly going to do something with Saab, Saturn and Hummer," he says. But even if these brands disappear, "they have sold enough of these vehicles there will probably be a viable aftermarket" to provide parts.

He says most GM brands are nearly identical to other GM brands. While this has "diluted the brands' character," it will make it easier to get service for a brand that goes out of production.

U.S. auto sales fell to 13.2 million last year from 16.1 million in 2007. This year, they are running at a seasonably adjusted annualized rate of less than 10 million. Only three makers -- Hyundai, Subaru and Kia -- have increased sales this year.


E-mail Kathleen Pender at kpender(at)
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