One of the biggest issues facing GM and Chrysler is the negative perception consumers have regarding its restructuring. Studies have shown that consumers don’t want anything to do with a bankrupt or near bankrupt company, which will in effect negatively affect the automaker’s sales. To help curb this attitude held my consumers, the Obama administration has issued a new warranty commitment program that ensures that the warranties on new GM and Chrysler cars will be regardless of what happens to each automaker. For more details, follow the jump…….

• The plan is open to all domestic automakers, including Ford. Obviously, GM and Chrysler will participate. Even though Ford hasn’t chosen to participate in the government’s warranty program, it can do so later.
• The plan specifies that an accounting reserve be established on paper that contains 125% of the projected warranty costs for each new vehicle sold by GM and Chrysler. The automakers will contribute 15% of those projected warranty costs for each vehicle, while the U.S. government will cover the remaining 110% from Treasury funds. A separate company will be established to manage the funds, which, in the event an automaker goes under, will facilitate the transfer of warranty obligations from the automaker to a new warranty service provider.
• Buyers don’t have to do anything to participate in the programs – once you buy a new GM or Chrysler car during the restructuring period of both automakers, you automatically become part of the program. which just happens automatically when you buy a new GM or Chrysler vehicle during their restructuring periods.

The program will likely help provide much needed certainty to consumers during the restructuring period. However, this is just a small band-aid to help stop the bleeding – it won’t heal the cut. The government has already indicated that GM and Chrysler will need major restructuring, with bankruptcy not out of the question.

Source: autoblog