What GM, Chrysler Bailouts Mean to Consumers

Later this morning, President Barack Obama will speak about the government’s role in restructuring GM and Chrysler. At midnight last night, the administration released a number of statements about the future of both companies. Here is what we’ve been able to decipher in those statements, and what it means for car buyers and owners.

GM
The company has 60 more days to revamp its restructuring plan. The phrase “farther and faster” being bandied about could mean even more brands will be cut. That would be on top of previously announced moves attempting to shed Saturn, Hummer and Saab. That leaves Chevrolet, Cadillac, GMC, Buick and Pontiac. The only safe brands, theoretically, would be Chevrolet and Cadillac. But considering GMC, Buick and Pontiac have consolidated their dealers, one of the three would likely need to remain in business, and only GMC has proved it can make money.  

During the next 60 days, the U.S. government will fully back warranties on every GM make and model, including Saab, Hummer and Saturn models. This timeline would begin March 31, meaning it would last until the end of May.

Buyers do not need to take any additional steps to qualify for the federally backed warranty other than purchasing a vehicle.

The warranty program does take into account the possibility of bankruptcy in the future. If either company files for bankruptcy, it will assign a third-party to handle necessary repairs and servicing for all vehicles purchased during this new restructuring period.

There’s no word on whether the government will back warranties on vehicles bought before today, but we assume they would not. This move is to give assurance to buyers over the next two months so sales don’t drop at a faster rate than they already have.

In the government’s release, it does state that after this more accelerated restructuring plan, GM would be a viable company in the future.

In the government’s own words: “In short, while the Company has made meaningful progress in its turnaround plan over the last few years, the progress has been far too slow, allowing the Company to continue to lag the best-in-class competitors. As a result, the President’s Designee has found that General Motors’ plan is not viable as it is currently structured. However, because of GM’s scale, franchise and progress to date, we believe that there could be a viable business within GM if the Company and its stakeholders engage in a substantially more aggressive restructuring plan.”

Chrysler
Unlike the statement regarding GM, the government says it will only loan Chrysler additional funds if it manages a successful partnership with Italian automaker Fiat. If that strategic alliance is completed with terms deemed acceptable by the U.S. government, it will grant the new entity another $6 billion in loans.

In its statement, the administration said it does not believe Chrysler could be a viable company on its own in the future.

The government will fully back warranties of Chrysler, Dodge and Jeep products for the next 30 days, meaning until the end of April.

In the government’s own words: “While the Company has made meaningful changes to its cost structure in the last few years, the combination of a fundamentally disadvantaged operating structure and a limited set of desirable products make standalone viability for the business highly challenging. As a result, the President’s Designee has found that Chrysler’s plan is not viable as currently structured. However, a partnership with another automotive company, such as Fiat or another prospective partner, which addresses many of these issues could lead to a path to viability for Chrysler.