If you haven't seen them by now, you will. Breathless media reports of absurd car deals will surely fill the airwaves soon. With Chrysler and GM in bankruptcy and dealerships closing, consumers are looking at one of the best car buyer's markets in memory. But while troubled automakers are offering great deals, is it time to take advantage of them?
Maybe. But think twice.
The car would be covered by a warranty. In fact, as dealerships will go out of their way to tell you, it would be covered by a warranty backed by the U.S. government.
That much is certain. But the details of the warranty coverage are a little vague. And warranty questions are being answered at the pace of...well...the federal government.
Under the terms of the Obama administration's auto industry bailout, the government is working with troubled automakers to ensure that, if a consumer buys a car from a manufacturer going through bankruptcy, the warranty on that car is still valid. The government has required automakers to project the likely repair costs of the vehicles they sell, and put 15 percent of that amount into a separate fund to cover warranty costs. The government will then put in 110 percent, so that ultimately, 125 percent of the expected repair costs of the car you buy is set aside for you.
And it's held by...someone. For a warranty administered by...somebody. Somewhere. Presumably.
Chrysler and General Motors have both entered bankruptcy proceedings, but the government's Warranty Commitment Program is still in the draft stages. Federal officials haven't yet organized the program, created a framework for administering it, or started accepting claims.
The manufacturer warranty on a new Chrysler product is good for three years or 36,000 miles - and by that time, the details of obtaining warranty service will almost certainly be sorted out. The same is true for GM's three-year/36,000-mile warranty. If Chrysler and GM emerge from bankruptcy successfully, the easiest solution may be for their dealers to make repairs out of the funds set aside by the Treasury department during bankruptcy -- but at this point, no one is certain how warranty claims will work under the Warranty Commitment Program. And the answers are trickling out at the pace of government work.
No Safety Recalls
More troubling, while minor defects are covered under warranty, major design flaws are not. Under consumer protection laws, automakers are responsible for correcting defects in design or manufacture that affect large numbers of their vehicles, free of charge.
It's called a safety recall. The procedure is simple. When enough claims have piled up to show that a particular model poses a safety risk, the government requires the manufacturer to notify owners and fix the problem free of charge.
Unless, apparently, the company is in bankruptcy. Then, they get to ignore it.
A group of consumer advocates objected to Chrysler's bankruptcy on just these grounds, and was overruled. As the law now stands, Chrysler isn't required to issue safety recalls on vehicles bought while the company is in bankruptcy protection. If you buy a Chrysler product before the company emerges from bankruptcy, then any major defects, even those that pose life-threatening risks, are yours.
Liability for those risks is yours as well. If your new Chrysler injures someone else because of a design flaw, according to some legal experts, you can't hold Chrysler responsible.
Even if the company emerges from bankruptcy protection, experts say, recalls on vehicles sold during the bankruptcy won't be the responsibility of the new company. At the moment, it appears that they won't be anyone's responsibility.
Questionable Lemon Law Protection
Other laws protect you from a new car with lots of defects. They vary by state, but so-called "lemon laws" all have a few things in common. They all require automakers to repair recurring defects in a new car, for instance. They all require them to buy the car back if it spends a certain amount of time in the shop during the warranty period, or if it suffers a certain amount of defects.
Until recently, Chrysler wasn't honoring any of them.
In California, the automaker has reportedly bounced checks it wrote to buy back defective vehicles under that state's lemon law. When consumers attempted to collect the bad debt, the bankruptcy court told them to get in line - behind all of Chrysler's other creditors
The company has since asked the bankruptcy court to allow it to spend money honoring lemon law claims, and the court has agreed. So if you purchase a bargain Chrysler during bankruptcy, you are protected by your state's lemon law. It isn't clear, however, how long it might take to receive payment. Lemon law claims are never quick or easy, and a lemon law claim against an automaker under bankruptcy protection may be a headache you don't need.
How Big is the Risk?
But these are new cars, right? How big can the risk of a warranty claim, a recalled defect or a lemon possibly be?
Of course, most new cars are fine. Lemons are uncommon, and many cars go through their entire lifespan without facing a serious recall.
But with a Chrysler, Dodge, or Jeep product, the risk is relatively high. In the most recent edition of J.D. Power and Associates' Initial Quality Study, which looks at repairable defects in the first 90 days of ownership, every Chrysler brand showed more defects than average - and Jeep had the worst record of any automaker.
Longer term, the results weren't much better. In Powers' Vehicle Dependability Study, considering defects over three years of ownership, only Chrysler beat the industry average. Even that brand's performance wasn't great - 16th out of 37 brands studied.
So yes, there are some amazing deals available right now on cars from Chrysler and GM. But before you buy one, be clear on the risks.They're under warranty, but it isn't clear how warranty claims will be administered over the long run. If there is a serious or life-threatening defect with the car, you're responsible for it. And if it's simply a lemon, then it's your lemon to deal with.