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Government Drops Warranty Assistance, May Put Dealerships On Life Support

Benjamin Hunting
by Benjamin Hunting
July 23, 2009

In a sign that things might be looking up for the automobile industry, the federal government announced this week that it would be withdrawing the financial guarantees that it had maneuvered into place to prop up vehicle warranty programs for General Motors and Chrysler. The initiative, which had been managed by President Obama's auto industry task force, had been implemented just prior to the bankruptcy of each automaker with the goal of increasing consumer confidence. The idea behind the program was that consumers were far less likely to purchase a vehicle from a company that might no longer exist by the end of the year, particularly if they were unable to access their warranty and service protections.

Now that both brands have emerged from bankruptcy and appear to have achieved a stable restructuring, the federal government has determined that its assistance in this matter is no longer required. In one of the few financially positive elements of the auto industry crisis, the 641 million dollars that was loaned out under the warranty assistance program has actually found its way back into government accounts. Not only has the money been returned, but GM and Chrysler have each paid interest on the amount they were loaned.

Obviously, while this faint heartbeat gives hope that a full financial recovery for both automakers is in the cards, there are still miles to go before complete stability is assured. Currently on the table is new legislation aimed at reversing the decision by GM and Chrysler to cut well over a thousand dealerships by the end of the year. Spurred on by those who have already had their franchises terminated, the government is considering reinstating any business which lost their right to sell vehicles as a result of the bankruptcy restructuring.

While this might seem like a valiant thrust to save thousands of jobs, the dealerships that were cut were in all cases part of cost savings plans integral to each company's restructuring. Chrysler has even gone so far as to state that if it were forced to reopen the 789 dealers that it shuttered mere months ago then it would no longer be able to remain solvent. For its part, General Motors has decided on a plan that would pay its former franchise owners 600 million dollars over the next two years as a way of softening the overall financial impact of their decision.

The auto industry task force itself, speaking through its new head Ron Bloom, indicated that it opposed the idea of reopening old wounds in the form of terminated dealerships. Primarily, the Bloom is concerned that doing so would serve as a risky example for other industries, and of course also jeopardize the teetering house of cards that GM and Chrysler currently find themselves navigating - a house of cards built on the back of 60 billion dollars in taxpayer funds.


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