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

Mar 30, 2009 12:23 PM

Car-warranty-protection 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."

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