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Survey: Car Buyers Shun Bankrupt Companies

GM May Find Consumers Unforgiving If It Files for Bankruptcy

December 27, 2005

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There's been talk in automotive circles that General Motors may be on the road to bankruptcy court. But GM executives may do a U-turn after reading the results of a new study that finds car buyers wary of buying a car from a bankrupt company.

The survey by Directions Research, Inc., found that only 26 percent of respondents said they would buy or lease a car manufactured by a company that was in bankruptcy.

The last major auto manufacturer to declare bankruptcy was Daewoo. The Korean company was unable to find a way out of bankruptcy court and it was eventually liquidated, leaving its customers stuck with "orphan" cars. That meant parts were difficult, sometimes impossible, to find. The U.S. dealer network collapsed and there was no one to honor the warranty.

"I can't find parts for my car -- it is not running and I owe money on it," Anthony of West Babylon, NY, complained to ConsumerAffairs.com in January 2003. "What can I do?" he asked.

The answer for Anthony, unfortunately, was to avoid buying from a financially shaky manufacturer next time around -- advice that apparently resonates with many of today's consumers.

Daewood's physical assets -- its plants, machinery and spare parts -- were auctioned off but the company and the brand name disappeared. The company that bought the lion's share of Daewoo's assets and began building cars in Daewoo plants under its own name? That's right, General Motors.

While no one expects GM to collapse, the fact is that a bankruptcy filing could result in temporary disruptions and changes in its dealer network.

GM lost nearly $5 billion from its North American operations during the first three quarters of 2005 and, although management denies any such plans, there is mounting speculation it may have to seek bankruptcy protection.

GM recently announced it would close 12 plants in North America and cut thousands of jobs.

Many major airlines, including United, Delta and Northwest are currently operating under bankruptcy protection, without any noticeable effect on passenger bookings. But as the Directions Research study shows, consumers don't view an automobile purchase in the same way they do an airline ticket.

The Cincinnati firm polled 1,063 adults during the three weeks ending December 14. The polling company said the study was not paid for by any special interest group and was not requested by any of its clients.

While the survey did not delve into car buyers' reasons for not buying from a bankrupt manufacturer, it did find that more affluent consumers were more likely to make such a purchase. It said that while just 20 percent of those earning under $25,000 a year would consider such a purchase, 32 percent of those earning more than $100,000 would do so.

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