One Last Thought on Car Buyer Assurance Programs

by Kevin on May 4, 2009

Another assumption that is being made about the auto manufacturing companies is that they will be around for a long time.

Chrysler is filing for bankruptcy. GM is bound to head that way soon. (At least I think it is inevitable.)

Perhaps Ford and Hyundai will come out of the recession without disappearing. Even so, will the programs?

Remember the AIG fiasco? AIG employees signed contracts in 2008. In our country contracts are bound by law. That is until the government comes in, says “we didn’t know about this!”, and then says either give back the money or we’ll just tax your bonus at a 100% rate.

That’s a slippery slope for us as a nation. The AIG bonus issue was solved by the government essentially throwing the contracts out (or at least making them useless with the taxes).

Could it happen with the assurance programs? I doubt it, but I don’t think that is beyond the realm of possibility. Imagine GM having to make huge concessions including cutting the assurance programs. If AIG can happen, this is definitely possible.

At the end of the day would you want to buy a product (that will need servicing and repair for many years to come) from a company that may or may not be around next year?

I wouldn’t.

(Plus, I would much rather buy a Honda or Toyota that will last longer and hold its value better.)


Philip May 4, 2009 at 12:51 pm

I presume that these insurance programs are just that, insured by outside companies. Therefore if the car company goes under most contracts are still held with other groups. Is it really a great deal, hopefully not. My car payment would not be the biggest problem if I lost my job but it certainly would be a problem for the time being. Has chrysler offered this type of warranty at all? I don’t recall their commercials.

In regards to the cost of cars and other vehicles a $500 payment is high but if it is easily within your spending range with maintaining some other savings then that is your choice of spending, possibly not the best choice but still their choice. My problem is when it is given to someone that truly can not afford the payments with their current job.

I guess I just don’t see the problems with these programs, and don’t see them as a risk to the companies because most people will find a job in less time than the available and will be carried over on their loans without increasing their costs.

Finance Nerd May 4, 2009 at 2:49 pm

Philip is correct — all of these programs are insured. It is not Ford, Chrysler or Hyundai making the payments it is an insurance company. The manufacturers pay for the program on a per vehicle basis, so the insurance company is the one on the hook.

I mentioned this before, but we insured the Hyundai program. Hyundai pays us a premium for every vehicle sold, and that is the extent of their financial obligation.

Jay May 4, 2009 at 8:52 pm

I once worked from a company that supplies parts to those companies you mentioned. Their inevitable closure would have a big effect to other subsidiaries and industries. I hope their closure wouldn’t happen. I prefer a ford by the way, and so is the nissan.

Kevin May 4, 2009 at 9:02 pm

@Philip and Finance Nerd: You know I never stopped to think that they would be insured. It makes sense, but I guess I’m so used to American car manufacturers doing things wrong that I didn’t take my thinking that far.

I haven’t heard of Chrysler offering this. Just Ford, GM, and Hyundai. Which is odd because Saturn is owned by GM and their commercials have come out against this type of thing, but I think they were targeting Hyundai with the commercials.

@Jay: I hate to break it to you, but we live in a capitalist society. It is our (American) own fault that if a few companies go under they take an entire group down with them. That is the risk those suppliers take. If they are ignorant to the fact that their buyers may go under some day, they deserve to go under, too. America would be much stronger with 15 car manufacturers competing in the same market. We would have better, stronger, faster, more fuel efficient vehicles. Suppliers would have multiple firms to sell to. If one manufacturer goes down, those suppliers could compete for the business of the other 14. Relying so heavily on a few customers is just asking for it, no matter the industry.

Finance Nerd May 5, 2009 at 3:34 am

You are right, Ford, GM and Hyundai have their programs insured, not Chrysler, I just mis-typed.

TStrump May 5, 2009 at 10:45 pm

My problem with the bonuses is that if AIG went broke, the employees would have got nothing.
The contracts would, in effect, have been worthless.
I think the government was right in what they did.

Kevin May 6, 2009 at 8:51 am

@TStrump: I understand your point — they wouldn’t have been paid. But any way you cut it the government intervened on a specific contract to tax the hell out of it.

What is going to stop them from doing it with my company? Yours? Our next door neighbors?

In my eyes what happened is the government knew about it and thought it would pass under the radar, it was found out, and the media blew up the story so the government had to act. The gov’t knew what they were getting into in terms of giving them billions of taxpayer dollars and they knew the contract was in place. The real issue is they shouldn’t have given them the money in the first place, but because they did they should have honored the contracts rather than tax the hell out of them. That’s a very slippery slope.

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