Federal Backing of GM, Chrysler Warranties Ends

The newly appointed head of President Obama’s Automotive Task Force, Ron Bloom, has announced the end of the federal guarantee program for GM and Chrysler.

The "Warranty Commitment Program" which began on March 30th of this year, was a key part of the president’s oversight of the restructuring of GM and Chrysler.

“I want to remind everyone that if you are considering buying a GM car during this period of restructuring, your warrantees will be safe and government-backed,” Obama said on June 1 as GM entered bankruptcy.

Chrysler spokesperson Kathy Graham said that the President’s program to back warrantees "actually spurred (consumers) to come to a Chrysler dealer."

“If you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always,” Obama promised. “Your warranty 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 warranty.”

The Program consisted of special accounts holding 125% of warrantee costs on new car sales, with 15% contributed by the automakers and the remainder consisting of TARP (Troubled Asset Relief Program) money.

When the plan was first implemented, there were fears that if the automakers went out of business, existing warrantees held by previous buyers would be a problem because they were not backed by the government under the WCP.

However, both companies are now out of bankruptcy, and the risk of GM and Chrysler not being able to honor warrantees has subsided greatly. Now the government is making good on its original promise to lessen its involvement when the restructuring was complete.

Now that the federal backing of warrantees has ended, the money in the special accounts, which is $641 million, will be returned to the U.S. government along with interest.

General Motors and Chrysler report that none of the government money had to be used to cover vehicle repairs under warranty and say that the Obama warranty program helped stabilize sales during the difficult period of restructuring.

Greg Martin, a spokesman for GM, said the warranty program "added an extra measure of assurance at a time when consumer apprehension was potentially at its highest."

Sales for both automakers fell in June: GM sales were down by 33.4%, and Chrysler sales fell 41.9% during the same period. Even so, the numbers were better than in previous months.

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