Monday, March 30, 2009

Obama guarantees GM and Chrysler warranties

President Barack Obama guaranteed GM and Chrysler warranties in an address today. How will he deliver on that promise? In 2007 the average GM warranty was estimated to cost $548. Based on an estimated 3.5 million vehicle production for GM and Chrysler in 2009, the cost liability is about $2 billion for vehicles to be produced this year. When past model years are considered, the total liability may be around $5 billion or more. The government certainly has enough of our tax dollars to back that mount up. However, that is not the problem. If Chrysler or GM were to be liquidated, many of their parts suppliers would go bankrupt. Many parts would not be available for months, if ever. If the price was right, someone would eventually manufacture replacement parts where possible. In many cases, it may not be feasible. If a supplier is liquidated, their dies may be scrapped. Replacement dies could run hundreds of thousands of dollars and make each limited run replacement part cost hundreds of dollars more than normal. There could also be patent issues keeping others from manufacturing duplicate parts. President Obama has made a bold claim. There is serious doubt that he can deliver on that claim. Read Obama's warranty promise (excerpt from

It is my hope that the steps I am announcing today will go a long way towards answering many of the questions people may have about the future of GM and Chrysler. But just in case there are still nagging doubts, let me say it as plainly as I can -- if you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warrantee will be safe.

In fact, it will be safer than it's ever been. Because starting today, the United States government will stand behind your warrantee.

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