Government to Guarantee GM, Chrysler Warranties

Posted: March 30, 2009

The Wall Street Journal reports, "The Obama administration said it would guarantee warranties on General Motors Corp. and Chrysler LLC vehicles to help mitigate any drop in sales that could occur as they undergo the tough restructuring measures recommended by the government.  Under the program, GM, Chrysler and the government would set up a fund to cover the cost of warranty repairs if either company were to end up filing for bankruptcy protection, according to memo released Sunday night by the administration's auto task force." 

A fact sheet on the warranty program distributed by the administration's auto task force explains, "The warranty program will cover all warranties on new vehicles purchased from participating auto manufacturers during the period in which those manufacturers are restructuring."  The program would "Create a separate account that will be funded with cash contributed by the manufacturer and a loan from the US Government to pay for repairs covered by the manufacturer's warranty on each new vehicle sold by a participating domestic auto manufacturer during its restructuring period. The cash contribution will be 125% of the costs projected by the manufacturer to satisfy anticipated claims under the warranty issued on that vehicle."

Jalopnik notes an interesting twist: "the auto task force has left the door open to Ford with the Warranty Commitment Program. The verbiage of the relevant section says: 'Any domestic auto manufacturer is eligible to participate in the program." Obviously, the administration wants to make sure that Ford's attempts to distance themselves from the other two domestics now for purposes of sales retention doesn't negatively impact their ability to go after entry into the program later on down the road."

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