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Auto Warranties in Danger?


If you buy a car made by GM, Ford, or Chrysler, and the auto maker then goes bankrupt, what happens to the warranty?

If you buy a car made by GM, Ford, or Chrysler, and the auto maker then goes bankrupt, what happens to the warranty? That question has clearly weighed on the minds of car shoppers, according to a recent survey conducted by CNW Market Research. Almost a third of current GM owners who bought a new car from another maker said that fear that GM would go bankrupt, leaving them with a worthless warranty, was a major factor in their decision.

Although the auto makers have issued assurances that warranties will be honored, some industry analysts think they should do more. One option, they say, is for the carmakers to arrange for financially solid third parties to honor the warranties if the companies can’t. Such a choice is probably a long shot, however, since it would involve admitting to consumers that bankruptcy is a real possibility, an action that the auto makers aren’t yet ready to take.

Some consumer advocates minimize the impact of a bankruptcy, pointing out that parts and service will always be available even if the companies go under. Others think that finding a place to get service could be a major problem, since dealerships would close. A potentially more serious problem for car owners, say industry experts, would be lower resale values, which would most likely go into free-fall if one or more of the big three carmakers went bankrupt.

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