• Mar 30th 2009 at 2:30PM
  • 54
One of the issues that is central to the survival of General Motors and Chrysler is how comfortable people are buying their vehicles while they attempt to restructure. The media paints a pretty bleak picture of these two automakers, so some buyers may avoid General Motors and Chrysler vehicles altogether because they fear that the companies won't be around to honor their warrantees. Part of the President's announcement today was the establishment of a Warranty Commitment Program backed by the federal government that ensures if you buy a GM or Chrysler vehicle, your warranty will still be honored regardless of what happens to each automaker.

The plan is open to any domestic automaker, and GM and Chrysler have already agreed to participate. The door is open for Ford to participate later, but right now the lone domestic automaker that has not requested government aid will not participate in the warrantee program.

The program mandates that an accounting reserve be established on paper that contains 125% of the projected warranty costs for each new vehicle sold by GM and Chrysler. The automakers will contribute 15% of those projected warranty costs for each vehicle, while the U.S. government will cover the remaining 110% from Treasury funds. A separate company will be established to manage the funds, which, in the event an automaker goes under, will facilitate the transfer of warranty obligations from the automaker to a new warranty service provider.

Buyers don't have to do anything to participate in the program, which just happens automatically when you buy a new GM or Chrysler vehicle during their restructuring periods. The government hasn't stated who determines when these restructuring periods are over, but suffice it to say that for the foreseeable future, any new GM or Chrysler vehicle will be fully covered under its original warranty. Who will service that warranty, be it the automaker or a different service provider, is an open question.

Follow the jump for the government's official details on the Warranty Commitment Program.

[Photo by The Toad | CC2.0]

Obama Administration's New Warrantee Commitment Program

Today, the Treasury Department announced an innovative new program to give consumers who are
considering new car purchases the confidence that even in this difficult economic period, their
warrantees will be honored. This program is part of the Administration's broader program to
stabilize the auto industry and stand behind a restructuring effort that will result in stronger, more
competitive and viable American car companies.

The Administration has committed to working with both GM and Chrysler during a finite period to
develop improved restructuring plans. The goal in both cases is to help these companies emerge
with a fresh start toward becoming competitive businesses without taxpayer assistance. During this
period of restructuring, the Administration is committed to standing behind the process. The
Administration is confident that GM will emerge as stronger company and is hopeful that Chrysler
can reach an agreement with Fiat that leads to a viable future. However, no matter what the
outcome, consumers should have confidence that if they buy new cars from either company their
warrantees will be honored.

The warranty program will cover all warranties on new vehicles purchased from participating auto
manufacturers during the period in which those manufacturers are restructuring. Both General
Motors and Chrysler have agreed to participate in the program. Specifically, the program will:

• Create a separate account that will be funded with cash contributed by the manufacturer and
a loan from the US Government to pay for repairs covered by the manufacturer's warranty
on each new vehicle sold by a participating domestic auto manufacturer during its
restructuring period. The cash contribution will be 125% of the costs projected by the
manufacturer to satisfy anticipated claims under the warranty issued on that vehicle; and

• In the event of a failure of a participating auto manufacturer, appoint a program
administrator who, together with the US Government, will identify an auto service provider
to supply warranty services.

The program will help provide much needed certainty to consumers, and a boost to the auto
industry, during the restructuring period. While the Administration recognizes that general
economic uncertainty may continue to impact new vehicle sales, and that the ultimate solution for a
healthy auto industry is a broad restructuring of the industry and a general economic recovery, the
program will support and encourage the continued viability and restructuring of the auto industry by
mitigating consumer uncertainty that is depressing demand for new vehicles.

What does the program mean for consumers?

• If you buy a new GM or Chrysler car during this restructuring period you will be eligible.

• You do not have to do anything to receive the U.S. commitment to your warrantee. It is

• The U.S. Treasury will work with the auto companies to back-stop your warrantee, and will
commit to honoring that warrantee in the event that the manufacturer cannot.

Background on the Warrantee Commitment Program

Program Operation:

As part of their normal business operations, auto manufacturers establish an accounting reserve
for each new vehicle sold, which reflects the expected cost of providing warranty services on
that vehicle. Under the Warranty Commitment Program, the participating auto manufacturer
will contribute cash to a separate special purpose company whose sole purpose is to pay covered
warranty claims. The total amount of cash to be contributed will equal to 125% of the expected
cost of paying for warranty service on each covered vehicle. The manufacturer will contribute
15% of the projected cost from its own funds, and Treasury will provide additional funds to
cover 110% of the projected cost. The company holding the funds will be run separately from
the auto manufacturer and will be able to continue paying warranty claims even if the auto
manufacturer goes into bankruptcy or goes out of business. In that case, the special purpose
company will use the funds in that account to facilitate the transfer of warranty obligations from
the issuing manufacturer to a new warranty services provider.

The program will be run by a third party program administrator with the backing of financial
resources allocated from the Treasury Department's Troubled Asset Relief Program (TARP).

Eligible Auto Manufacturers:

Any domestic auto manufacturer is eligible to participate in the program. If a manufacturer
decides to participate, it will work with the third party administrator to establish a warranty
support program. Participating auto manufacturers will contribute 15% of the cash reserve for
each new warranty they issue. The US Government will provide the remainder of the funding
for the cash reserve on each new warranty issued by the participating auto manufacturer during
the period in which it is enrolled in the program.

If the auto manufacturer goes out of business, the program administrator and the US
Government will conduct a process to identify a qualified third party warranty service provider
to assume responsibility for all of the manufacturer's warranties covered by the program, in
exchange for the assets of the program. Because of the significant funding of the reserve
account, Treasury is confident that qualified third parties will be interested in taking over the
warrantee obligations.

Eligible Warranties:

The program will cover the participating manufacturer's warranty on every new car sold during
its restructuring period.

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    • 1 Second Ago
      • 6 Years Ago
      It's like socialized health care for your car! They'll have to get new shirts that say 'Comrade' Goodwrench.
        • 6 Years Ago
        GM = Government Motors

        • 6 Years Ago
        That's what I was thinking - Medicar!
        • 6 Years Ago
        I see no possibility of the automakers abusing this program!
        • 6 Years Ago
        A "leftist" car warranty...that's new.
        • 6 Years Ago
        you beat me to it :(
      • 6 Years Ago
      Sweet, socialized auto repairs!
        • 6 Years Ago
        Actually if it was really socialized then your next new car would cost a lot less. If GM is only putting in 15% of the cost of each new warranty then they should be taking 85% of the full warranty cost off of the sticker. Or are they just pocketing that money?
      • 6 Years Ago
      SO nobody cares that a good person playing by the rules, trying to live an honest life gets shafted again.

      SO now I have to pay for the idiot who makes $20k a year and bought a $500k house. Then I have to pay for my neighbors repairs because he abuses his car. I'll have to pay for his credit card debt too.

      I also have to pay for the welfare mom with 6 kids who gets $700 a month in food stamps, and the emergency room bill for bringing in a kid with the common cold.

      This and so many other things that an honest person should never have to pay for.
      • 6 Years Ago
      • 6 Years Ago
      "while the U.S. government will cover the remaining 110% from Treasury funds."

      folks.... the Treasury doesnt have any money...... oh wait thats right they can just sell more bonds to the FED

      "A separate company will be established to manage the funds"

      so you and i and are grandchildren ad infinitum are on the hook for the warranties and for paying for a whole new company of salaries and accompanying expenses. someone google how much it cost to run a huge insurance company per year.....
      • 6 Years Ago

      Your an A$$.

      See VA and the Obamanations, proposal to save VA money by letting veterans, shot or maimed on the battlefield, use their non Va insurance to fix them up. Some efficiency!

      You wil get a Sociaist Health Insurance Plan, instead.

      Not Health Care. Just like Cuba and Venezuela.

      No doctors, No medicines, No clinics. No nurses. But You do have a nationalised Health Insurance Policy that is written on toilet paper, and entitles you to exactly what !?! Not a damn thing.

        • 6 Years Ago
        If all you say about the Cuban medical system is true, why is it that they are much healthier than most OBESE/Lard Ass Americans? Live longer too, that's bad medicine for ya, it lets you live longer.
        • 6 Years Ago
        I like when people don't know what they are talking about.

        Carry on.
        • 6 Years Ago
        Another thing you need to know about Cuban medicine, a vast majority of doctors throughout Latin America, the Caribbean, South America included, are trained in Cuba.
      • 6 Years Ago
      "Ford to participate later, but right now the lone domestic automaker that has not requested government aid"


      Ford has requested Government aid...they just have not taken it yet. The Government has allocated 9 BILLION in loans specifically for Ford.
      • 6 Years Ago
      Hah, aren't you cute. There won't even be any cars lined up, just boxes and boxes of fake claims from the automakers to get every cent "due" to them.

      A local dealer practices the same sort of shenanigans. Several people I know have gotten customer satisfaction cards from their extended warranty company asking how their new transmission/engine/ecu is working. Of course they've had no such service performed.
      • 6 Years Ago
      How do you get your healthcare right now? Little do you know, you are currently paying for the folks who don't have healthcare. They get sick, they go to the emergency room, we get the bill, by way of higher premiums.
      • 6 Years Ago
      This only tells me the Gov't (I mean Obama) has already decided to let these companies go chapter 11...or whatever Big Brother is going to call the "restructuring" it will be "assisting" these companies with within the next two months.
      • 6 Years Ago
      And you are paying taxes and social security already. So you are already living in a socialist state, but didn't know it, I guess.

      Some of you posters talk as if Mr. Obama INVENTED socialism. He invented socialism as much as Al Gore invented the internet.
        • 6 Years Ago
        But Al Gore *did* invent the Internet! Al Gore said he did, and EVERYTHING Al Gore says is true!
      • 6 Years Ago
      I think many of us have the opinion that we'd rather take care of ourselves and others as we see fit instead of being opted in to programs we don't believe in. This warranty backing idea sounds like a waste of money to me. I understand it's a measure to build consumer confidence in the automakers but is it necessary? I'd rather see them build cars that need minimal warranty service.
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