The auto bailout has broad effects.

Should American car buyers and owners be worried?

Regardless of how the auto bailout unfolds, the Big Three are in big trouble. With the continuing credit crisis, Detroit automakers are having a hard time finding buyers for their cars.  At the same time, Ford, General Motors and Chrysler are experiencing a credit crunch of their own; they can't borrow any more cash to stay afloat.  So Congressional leaders have come up with a plan to lend $15 billion dollars to the Big Three with the hope of saving them from bankruptcy, which many analysts say would be the death knell of the American auto industry.

And who else could be caught in the wake of the billions of dollars, backroom concessions and partisan rhetoric?


This is especially true if you're thinking of buying an American car or already own one.  Ford, GM and Chrysler are all offering incredible discounts on their vehicles in an attempt to stimulate sales, but many consumers are still sitting on the sidelines. Is now a good time to take advantage of the unbelievable deals on new cars?  If you already own a domestic car, and the carmaker goes bankrupt, what happens then? While no one can predict what will ultimately happen to the Detroit's famed auto manufacturers, here's what car buyers and current domestic car owners need to know if the company that made their car goes belly up.

If You're Thinking About Buying

For the few people who are car shopping these days, it's easy to be dazzled by the deals that Ford, GM and Chrysler are offering on their cars.  But there's also a lot of worry involved.  Long-term, what could buying a domestic car mean for you?

Before deciding to jump into the pool of domestic deals or run straight to the Toyota dealership, think about how long you'll need the car.  If a carmaker goes bankrupt, the biggest threat to people who own their cars is depreciation. Cars made by bankrupt companies decline in value rapidly. However, depreciation is only a big concern if you plan on selling the car.  If you keep your cars long after they're paid off, depreciation is less of a factor and you can take advantage of a great deal on a domestic car with little worry. If you like to buy a new car every few years, you should wait until it's clear the carmaker is going to survive, or shop for a car from another brand to avoid taking a big financial hit.

If You Already Own a Domestic Car

If you already own a car from the Big Three, you're probably thinking about your car's long-term needs. How will you get it serviced? Will the warranty be honored? 

Relax.  Your Chevy Malibu won't turn into a pumpkin the minute GM files for Chapter 11.  All Detroit automakers have large dealer networks, and while what happens to those dealers depends on a company's bankruptcy filings and market dynamics, there are precedents for what happens to dealers when an automaker leaves the market. In the past, when a carmaker closes up shop, dealers stick around as parts and repair shops.  In the case of the Big Three, some dealers may shut their doors, but others (especially those that sell domestics alongside imports) will still service the vehicles they sold.

One example of this is Isuzu, which is leaving the U.S. market in January of 2009. Isuzu dealers (most of which are attached to GM dealerships) will stay open as parts and repair shops, and will continue to honor Isuzu warranties. While there is no guarantee that the same thing will happen should any of the Big Three go bankrupt, the precedent is there.  Also, if a domestic automaker goes bankrupt and the brand is sold to pay the company's debts, the new owner may be forced to honor older warranties as part of the deal, so you could still be protected. 

If your domestic car is out of warranty, you have more leeway.  Because domestic cars are so common, you should have no problems finding a qualified repair shop even if your local dealership closes.  Most mechanics get their first training on engines and parts from the Big Three. Part suppliers already sell parts for domestic cars directly to repair shops, so you should be able to maintain and repair your vehicle for a long time.

The Bottom Line

Whether you're thinking about buying or already own an American car, it can be a nerve wracking time. The congressional bailout talk is confusing, and there's not a lot of information about what the bailout -- or bankruptcy -- means for consumers.  And it's a shame that the credit crisis is affecting automakers and consumers right now. For the most part, American car quality is going up and each of the Big Three has exciting future models planned, such as the Chevy Volt, Ford Fiesta and the Dodge EV.

For American car owners and car shoppers, staying calm is the order of the day.  Think about how bankruptcy could affect your car's depreciation before you take the plunge and buy.  If you already own, you can feel pretty secure about being able to have your car repaired and its warranty honored.