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Federal Government Guarantees GM, Chrysler Warranties

Feds Oust GM CEO, Issue Overtime Parking Warning to Chrysler

By Truman Lewis
ConsumerAffairs.com

March 30, 2009

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The federal government is underwriting GM and Chrysler warranties, effective immediately. President Obama made the unprecedented announcement hours after his automotive task force demanded — and got — the head of GM CEO Rick Wagoner. Chrysler, meanwhile, said it has reached agreement on an alliance with Italian automaker Fiat.

Obama pledged to work with Congress to offer consumers tax credits if they turn in their old cars and buy new, cleaner, more fuel-efficient vehicles.

"Let me say this as plainly as I can," Obama said in a speech today. "If you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired just like always. Your warranty will be safe. In fact, it will be safer than it has ever been. Because starting today, the United States will stand behind your warranty."

The move is intended to erase any doubts consumers might have about whether their warranties will be honored if either of the automakers winds up in bankruptcy court, as seems increasingly likely.

Funds for the warranty program will come from the $700 billion Troubled Asset Relief Program (TARP) provided by Congress, the White House said earlier.

At a news conference, Obama outlined these additional measures the administration hopes will spur U.S. auto sales, presently at their lowest point in 27 years:

• Federal purchases. Obama said federal agencies will step up their purchase of new vehicles;
• More credit. The administration will work to increase the flow of credit to car purchasers and dealers;
• Tax benefits. The Internal Revenue Service will start a campaign to educate consumers about the tax breaks available for those who buy new U.S. vehicles between Feb. 16 and the end of the year.

Over the weekend, the Obama automotive task force demanded Wagoner's resignation as the price of further federal aid, a stark reminder that one should be careful what one wishes for. The feds also delivered a stiff warning to Chrysler that it needs to accelerate its talks with Italian automaker Fiat if it hopes to avoid driving off a cliff.

Chrysler-Fiat

By midday Monday, Chrysler LLC said it had reached a formal agreement with Fiat and said the U.S. Treasury Department had given its blessing to the deal. Obama had given Chrysler 30 days to conclude the deal or forfeit as much as $6 billion in additional U.S. aid.

The Fiat-Chrysler deal is expected to bring to U.S. highways a fleet of fast, fun and stylish little cars built by Fiat, the Italian giant that also owns the Ferrari, Maserati and Alfa Romeo lines. The sudden explosion in models should also be a blessing to struggling Chrysler dealerships.

The task force said in no uncertain terms that neither company has yet done enough to map a road to survival and may need a quick scrub in bankruptcy court. Though unpleasant — and very expensive to stockholders, suppliers, creditors, employees and retirees — a pre-planned "quick rinse" bankruptcy could remove enough rust to give the companies a fighting chance of turning a profit before the next millenium.

Obama is still dangling the $21.6 billion in new loans the companies have requested — but he's not expected to deliver the money until all parties, including labor, shareholders and dealers, agree to make the sacrifices necessary to get the companies back on track.

"We think we can have a successful U.S. auto industry,” Obama said Sunday on CBS’s Face The Nation. “But it's got to be one that's realistically designed to weather this storm and to emerge at the other end much more lean, mean and competitive than it currently is.”

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