In a bid to boost flagging auto sales, the federal government will pay for any warranty repairs on a General Motors or Chrysler vehicle if either company can't because of financial problems or a bankruptcy filing, President Barack Obama said today.
"Let me say this as plainly as I can. If you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired just like always," Obama said in a speech today. "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."
GM and Chrysler are at a high risk of bankruptcy as they face some of the lowest U.S. sales rates in 27 years, analysts have said. The government today took several actions to help shore up the two automakers after forcing the resignation of GM CEO Rick Wagoner.
Both companies have said that bankruptcy would snuff out sales because consumers wouldn't buy a car from a company that might not be around to honor the warranty and provide service and spare parts.
U.S. sales results since their initial appeal for federal aid in November supports that claim. Sales at the two automakers have declined at least 30 percent in each of the past four months, plunging more than 50 percent twice at Chrysler and once at GM.
Any funds for the warranty program will come from the $700 billion Troubled Asset Relief Program (TARP) provided by Congress, according to a White House fact sheet.
Guaranteeing warranties restores some confidence to prospective auto buyers, said Jerry Golinvaux, president of Roseville Chrysler-Jeep-Dodge in Roseville, Minn. But fear about the economy and job security has a more severe effect on consumers, he said.
"The biggest thing that we hear from customers is, 'Well, we're not really certain that this is the time when we should be buying a car because there's so many uncertainties out there with the economy,' " Golinvaux said. "We never really hear, 'We're not certain whether the auto companies are going to be around.'"
But "the one big issue" in the minds of consumers who had decided to buy new vehicles was the automakers' ability to back their warranties, said Joe Serra, president of the 15th-largest dealership group in the U.S. Serra Automotive Inc. sells GM or Chrysler vehicles at 17 of its 23 stores.
"What this announcement did is it brought General Motors and Chrysler into the game," he said. Before the Obama announcement today, "We were asked this question, you know, 'What if?' And we didn't really have an answer," he said.
Support for scrapping incentive
Obama also today said he will work with Congress to try to fund credits for consumers who turn in old cars and buy cleaner, more fuel-efficient automobiles.
Programs of this kind "have been successful in boosting auto sales in a number of European countries," Obama said. The auto scrapping program is part of a larger administration effort to increase car sales and modernize manufacturers' fleets.
In Germany, new car registrations rose 21 percent in February after the government offered consumer rebates of 2,500 euros ($3,150) to trade in vehicles that are more than nine years old for new more energy-efficient ones.
Similar government programs have been launched in France, Spain and Italy.
Obama said he also will try to speed up programs to support immediate demand for auto sales. The administration will try to accelerate federal purchases of government cars and increase the flow of credit to consumers and dealers.
Also today, the Internal Revenue Service will start a campaign to alert consumers of a new tax benefit for car purchases made between Feb. 16 and the end of the year, Obama said.
Lawmakers responded to Obama's initiatives along partisan lines.
U.S. Sen. Bob Corker, R-Tenn., a member of the Senate Banking Committee, said the administration used Wagoner's departure as a "sideshow to distract us from the fact that the administration has no progress to announce today."
"The administration is pursuing much of what we pushed for in December, but the delay of several months has increased the severity and sent billions of taxpayer dollars down the drain. Now any investment is likely unrecoverable and we are putting more and more jobs at the OEMs (original equipment manufacturers) and the supply chain at risk in a politically charged environment."
Senate Majority Leader Harry Reid expressed support for Obama's plans.
"We will not give these companies a blank check," the Nevada Democrat said in a statement. "If these companies do not develop strong plans to remain viable in the long term, they will lose our support."
(Source: Neil Roland and Richard Truett via AutomotiveNews)