Bailout Watch 570: Feds End GM/Chrysler Warranty Guarantees
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.
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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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.