By on July 21, 2009

In prepared testimony before the House Judiciary Subcommittee, Car Czarlet Ron Bloom revealed that the government would no longer back GM and Chrysler warranties. “With the successful emergence of the new companies, consumers can now feel assured that the companies have the financial wherewithal to meet their warranty commitments on a continuing basis,” Bloom said. The $641 million spent by the government on the warranty program has been returned to the Treasury with interest, reveals Bloom. “This achievement represented a prudent short-term use of taxpayer funds,” was his conclusion. GM spokesfolks tell Automotive News [sub] that The General never even tapped the fund, while Chrysler reps are mum on the subject.

Bloom also tackled the tricky subject of the dealer cull. “Consistent with the Task Force’s role, we were not involved in the design or implementation of New GM or New Chrysler’s dealer rationalization plans,” he said. “We were not involved in any individual decisions about dealers, and we do not intend to be going forward.” But, but, but . . .

the companies have engaged recently with several members of Congress—including members of this subcommittee—about potential additional modifications of their review and reconsideration processes that would further increase transparency and objectivity for everyone involved. We have been supportive of this process, in our role as a facilitator, to ensure this process is transparent, fair and objective. However, the Administration strongly opposes the amendment to the Financial Services appropriations bill that attempts to restore prior Chrysler and GM franchise agreements.

Why?

Political intervention of this nature could also jeopardize taxpayer returns by making it far more difficult for the companies to access private capital markets if there is ongoing uncertainty about whether Congress will intervene to overturn judicially approved business decisions anytime that it disagrees with the judgments of the companies.

Some strong opinions there for a “facilitator.” But Bloom clearly feels that the stakes were high enough to justify his task force’s tough stances. Not that there aren’t some signs that Bloom (or Obama) has some doubts about the intervention. Bloom concludes

In a better world, the choice to intervene would not have had to be made. But amid the worst economic crisis in three-quarters of a century, the Administration’s decisions avoided a devastating liquidation and put a stop to the long practice in the auto industry of kicking hard problems down the road. The Auto Task Force worked quickly to assist GM and Chrysler and did so in a fair and open way. While difficult for all stakeholders involved, these transactions provide New GM and New Chrysler with a new lease on life and a chance to succeed.

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17 Comments on “Bailout Watch 570: Feds End GM/Chrysler Warranty Guarantees...”


  • avatar
    menno

    (Warning: major sarcasm alert)

    A government which says one thing and then does
    another? Wow, that’s never been seen before…

  • avatar
    TexN

    Okay. A couple of comments:
    1) $641 million returned. Great. About $82 billion to go and we’ll call it even and then I can once again CONSIDER a GM or Chrysler product.
    2) This is why “teamwork” is so important: this way everyone has some degree of plausible deniability when things get FUBAR. The government blames the companies, the companies blame the economy, the companies blame Congress, etc., etc. As the saying goes, nice work if you can get it.

  • avatar
    dean

    bluecon: OPM was not a problem for the Bush Jr. administration, the Clinton administration, or the Bush Sr. adminstration before that. Hell, isn’t politics, by definition, doing what you want with other people’s money?

  • avatar
    wsn

    dean, it’s one thing to spend 300B of OPM in one year and it’s another to spend 3T of OPM in one year.

  • avatar
    Bunter1

    “…successful emergence of the new companies…”

    Anyone want to try to guess what the Gov’t definition of “successful” might be.

    The mechanic (Prez Goodwrench) may have been able to shove those clunkers out the door with the gov’t tow truck (our money)but we have yet to see if they will start and run on their own (or even FIATs) power.

    Hmmmm…saw that GM was bleating about weak July sales today…guess the consumers are still to stupid to believe GM…and the Gov’t.

    What a bunch of rubes we are.

    Bunter

  • avatar
    Lokkii

    $641 million returned. Great. About $82 billion to go and we’ll call it even and then I can once again CONSIDER a GM or Chrysler product.

    Now let me get this straight.

    I lend you $641M for warranry claims.

    Then I lend you $82B to pay off the unions keep you in business.

    Then you take some of the $82B and use it to repay the $641M to me.

    Riiiiiiiight.

    Can I borrow $20 from you and then $100? Please?

  • avatar
    TexN

    Lokkii,
    The money is in the mail to you. You pinkie swear you’ll pay it back, right? Right? Lokkii? Anyone?
    Tex

  • avatar
    50merc

    Let’s see if I got this straight. Anyone who buys a Government Motors or Fiatsler vehicle now can look only to the factory for warranty support, right?

    If so, I suspect a lot of people are wrong in assuming Obama will make sure their car gets fixed.

  • avatar
    PeteMoran

    My employer researched the subject and we think pretty conclusively answered the question during Oct/Nov 08. Financial weakness (bankruptcy specifically) was a factor in purchasing decisions. I think the sales numbers reflected that.

    One of the few possible actions to ease the problem was for the Government to say “Buy with Confidence” and stand behind the warranty for the moribund GM/Chrysler.

    Removing the guarantee now would seem way way way too early.

    In the months to come and if sales tank, this decision might be a significant contributor.

    Then again, the (expensive) slowing of the eventual Ch7 GM breakup was probably always the goal, so this fits.

  • avatar
    agenthex

    dean, it’s one thing to spend 300B of OPM in one year and it’s another to spend 3T of OPM in one year.

    It’s hilarious how these figures are calculated. For example, a large chunk of the stimulus bill “spending” is tax cuts. Every time anyone says this, they are admitting those two are the same thing.

    Ok, I get it some people are bad at math, but that’s some epic failure right there.

    It would appear by the gist of the comments the gov are in a bad position. Every decision they make, either yea or nae, get criticized by the exact same people. On the other hand, not surprising for folks who want society to never do anything except wait for a crawl back to the caves.

  • avatar
    toxicroach

    Pete, I doubt it will have any noticeable effect. Which isn’t to say it won’t have an effect, but it will be hard to spot on graphs.

    It’s like a newspaper retraction; millions read the story, thousands read the correction. People will continue to buy, or at least feel better because they think the govt. will cover their warranty. Should the worst happen, ooops. Shoulda read the fine print there buddy.

  • avatar
    obbop

    My GM warranty was mostly worthless from 2004-2007 with a couple rare exceptions.

  • avatar
    quasimondo

    If I recall, the reasoning behind the gov’t backing GM & Chrysler warranties was to ease consumer worries about purchasing a vehicle from a company that’s under Chapter 11 reorganization.

    Now that both companies are no longer under this reorganization and no longer under the immediate threat of going out of business, why should they guarantee warranties of companies that are no longer in danger?

  • avatar
    PeteMoran

    @ quasimondo

    why should they guarantee warranties of companies that are no longer in danger?

    Because, I would suggest, the Government should be trying to ensure the protection of a very heavy investment of taxpayer money.

    Correcting the perception via warranty guarantee was cheap previously, so it was good insurance to remove another variable from the success of the Ch11 restructures.

    Without any hard data on the issue, I’d further suggest that the average potential GM/Fiatsco buyer might not believe they’re out-of-danger financially, which takes you back in time to Nov 08 and doubts over warranty then (obbop comments noted).

    @ toxicroach

    Could be hard to spot you’re right, but we thought the pre-Nov 08 hearing effect for GM was pretty noticeable at the time no?

  • avatar
    GS650G

    All this proves how wrong it was for the government to get involved in this mess in the first place and place billions of money they don’t have at risk.

    Look at the stock prices of these companies. GM died a long time ago, Chrysler was a corpse when M-B unloaded it for 1/6 of what they paid for it. Ford stock is back up, indicating they are quite possibly the only viable one left, provided the other two do not get special favors on the taxpayer teat.

    The more they try to manage this mess the worse it gets. As the Brits say, the first thing you do when stuck in a hole is stop digging.

  • avatar
    jpcavanaugh

    OK, so here’s my question. Say I wanted to help out the auto industry, and was teetering because I was worried about warranty coverage. The government guarantees the warranties of GM and Chrysler, so I decide to buy a new Jeep. Lifetime power train warranty.

    Is the government just not backstopping warranties on cars made/sold from here on? If this is what is happening, I see no problem.

    But if the government is yanking guarantees on warranties on cars that were bought because the government was behind the warranty, then this sounds problematic. Had I bought a car under these circumstances and now was left with an unprotected warranty on a car built by Old Chrysler or Old GM, I would feel cheated by my government.

  • avatar
    GS650G

    I would feel cheated by my government.

    First time?

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