Chrysler/GM Car Glut: Savings Opp Or Nightmare?

To add insult to injury, Chrysler and GM will NOT be buying back vehicle inventory from dealerships that recently received closing notices. Maybe we have two new candidates for Worst Company in America next year! On the other hand, maybe this is good news for consumers. Large inventories + need for quick cash = SALE!

And not only a small, save-a-bit sort of sale, but potentially a huge, save-thousands-of-dollars sale. Of course there are no guarantees that the savings will be gigantic (Circuit City didn’t really show us the price love, now did they?), but all the elements are in place. Throw in the tax incentives for buying a new vehicle we could be in car-buying bonanza land. And there’s no need to worry about buying such a car, since the warranty from the company will still be valid.

Hold on a minute. There’s one thing that’s nagging us a bit: buying a car from a company that’s on the verge of going out of business. Sure, they’ll give you a warranty on the car now, but what happens in two years when the companies potentially no longer exist? Thinking about it that way makes a great deal a bit more risky and maybe no as much of a “value”.

Of course it’s a balance between savings and risk. If the discounts become really steep, it may be worth the risk to get a new GM or Chrysler. But if the savings are only a few hundred dollars, or even a couple thousand, we’ll pass this time around.

Dealership Closings: Bad for Them, Good for You [MainStreet]

FREE MONEY FINANCE (Photo: frankieleon)

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  1. YouDidWhatNow? says:

    Oh come on guys…there’s no chance at all the GM and/or Chrysler is “going away.” The very, very worst that could happen is a comprehensive bankruptcy during whic GM/Chrysler get bought, or subdivided and bought, by other players, which will pick up warranty covereage as a requirement of doing business (there would be no value in buying the Buick name, for example, just to turn around and say “oh, yeah, those pre-us-owning-it warranties – not good.”).

    • sirwired says:

      @YouDidWhatNow?: There is NO requirement for a company that picks up assets in bankruptcy to also pick up liabilities. If the new owner doesn’t want to cover warranties, then they don’t have to.

      Just like TigerDirect isn’t honoring CompUSA or Circuit City gift cards, despite their ownership of those brands. Just like the new company that bought the Sharper Image brand isn’t responsible for service on any of the old crap the stores used to sell.

      There can be plenty of value in a brand name outside of existing customers that would be upset about a denied warranty claim.

      • YouDidWhatNow? says:

        @sirwired:

        I recognize the fact that they don’t have to – the point I made, and I believe this beyond a shadow of a doubt, is that there would be no value left in the brand name you bought (ostensibly with all the parts and tooling etc.) if you just turned off all existing warranties.

        No one would ever buy that brand again, since the first thing you did with it was stab all existing owners in the back. There would be no value left in the brand name at all…well, maybe the same kind of “value” there is in a brand like Enron.

      • acarr260 says:

        @sirwired: The federal gov’t already agreed to back the warranties, so they are a completely moot point.

        • alexcassidy says:

          @acarr260: One thing worth noting, however, is that Chrysler has been bouncing checks issued as a result of settling Lemon Law cases, and has no intention of doing anything about it.

          So the government will back your warranty, but if the car ends up being such a turd that warranty repairs won’t help (and again, this is Chrysler), then you’re screwed.

        • AI says:

          @acarr260: Will the US Federal government cover a warranty for a GM vehicle purchased in Canada by a Canadian? No? Then it isn’t a moot point at all.

    • The Cheat says:

      @YouDidWhatNow?: “there would be no value in buying the Buick name”

      ‘Nuff said…

      • acarr260 says:

        @jcostantino: Buick is HUGE in China, so it is actually a very valuable asset.

        • CRNewsom says:

          @acarr260: Buick in China is operated as a different company entirely. Purchasing the brand rights in, say, North America might not have any effect on the independent operation of Buick Asia.

          /pure speculation

    • nataku8_e30 says:

      @YouDidWhatNow?: Didn’t the US government say it would honor all of these vehicle warranties? Also, vehicle warranties are generally pretty unnecessary. I’ve never owned a vehicle with a warranty on it and have been fine.

      • YouDidWhatNow? says:

        @nataku83:

        I think I did hear that…so maybe that’s a moot point. But, at any rate, the actor on the warranties would be the new owner. If the government is somehow underwriting that, then I guess so much the better for the new owner.

        Either way, I think the intent of my original post stands. I think it’s a bit of a catastrophization to imply that either of these companies might be “going away” and that you’d have to fear for an unhonored warranty.

      • Trick says:

        @nataku83:

        Yes, your warranty will be covered at the local DMV office. After filling out 10 pages of paperwork you will then have to wait 8 to 10 weeks for work to be done…

  2. SkokieGuy says:

    What tax incentives are available for a new car purchase? I thought the ‘cash for clunkers’ was just an idea at this point.

    Other than possibly deducting sales tax, how else can we benefit?

    • alyssariffic says:

      @SkokieGuy: The tax incentive that I know of is exactly what you suggest – this year the sales tax on a new vehicle is tax deductible, which is probably what they’re referring to.

    • Shadowman615 says:

      @SkokieGuy: Many dealerships have been selling cars for close to and even below invoice over the past year. Perhaps there can be even better deals now at some of the closing dealerships. Or maybe not — it’s hard to tell.

  3. pjsammy says:

    the manufacturer not buying back the inventory is perfectly acceptable. It’s a franchise agreement. Under bankruptcy law, one party can choose to end the agreement. simple as that. there’s no precedent or reason for GM to buy back the vehicles. Does it still sting a little? sure. But it’s not socialism or some huge unjust act.

    The only two fire-saled vehicles I’d be considering are the Saturn Astra or Pontiac G8. but that’s just me.

    • William Brinkman says:

      @pjsammy: Are the Astras as good as their EU equivalent?

      • Jim Topoleski says:

        @William Brinkman: Yes although the US gets a limited body/engine choice compared to the EU, only the lower power gas motor was brought here, no turbo or diesel and no sedan or coupe bodystyle, only the 2 and 4 door hatchback.

        The reasons it hasnt sold well here are

        1) US consumers hate Hatchbacks.
        2) US consumers hate engines that are properly powered to the vehicle (IE if it doesnt have stupid amounts of horsepower, its not good.)
        3) The import price was high compared to the Golf/Rabbit thought thats since changed.

        Honestly if they had a Astra configured like I wanted it, I would have gone for that over the Aura. The only reason I got a Aura was because at the time it was only a little more money for a fully loaded car. The Astra price has since dropped considerably.

    • cromartie says:

      @pjsammy: Go buy a G8. Immediately. At 19k (15.8k if you can get the employee discount) it’s a steal.

    • pbwingman says:

      @pjsammy: What you fail to realize is that Chrysler isn’t following normal bankruptcy law. Normally, every debtor takes the same hit. But Chrysler was allowed to “pick and choose” whose contracts were voided and which ones they kept.

  4. minsky says:

    They should mark down all the vehicles to 50-percent off, no gimmicks and watch them fly off the lots and stimulate this crappy economy.

    No worries about warranties or parts, there will be parts and service available for these cars for eons.

    • acarr260 says:

      @minsky: 50% off means a huge loss on every car sold – sounds like a solid business plan if you like giving away money.

    • JayXJ says:

      @minsky: I’ve seen a local Chrysler/Dodge dealer (soon to be axed) doing pretty close to that. ’09 PT Cruisers for $9000. ’09 dodge Caravans for $11000. The problem is that you have no idea if you have a warranty this time next year (Town and Countries go through transmissions like some cars go through brake pads) and your vehicle has essentially no value the minute you drive off the lot.

  5. Riff Raff says:

    Ironically, it seems buying a car from the likes of Saturn, or other potentially off-loaded division, is safer than buying from the parent company itself. Think about it for a second. There are some companies and investors who actually want to have a piece of Saturn. Does anybody truly want a piece of Chrysler or GM anymore? Rather, is there anyone who wants either of these companies to survive, except for those with a financial or political interest?

    • nataku8_e30 says:

      @Riff-Raff: Yeah, I actually like GM’s cars.

      • Heresy_Fnord says:

        @nataku83: I think GM makes good cars and public perception is down because of problems from 20 years ago. Modern GM cars on on par with any other auto-maker in the class they are competing against.

        Plenty of Honda’s, Toyota’s, and Nissan’s have problems are they are crappy foreign cars in my eyes. Now a BMW is a respectable foreign car.

        • West Coast Secessionist says:

          @Heresy_Fnord: You had me until you suggested that BMW was respectable. Fashionable? Sure. But if you took 10 Hondas, 10 Toyotas, 10 GM cars, and 10 BMWs, in 2 years time there would be more BMWs that had a serious repair needed than the American + Japanese marques combined.

    • acarr260 says:

      @Riff-Raff: Saturns are merely re-badged Opels at this point. Saturn hasn’t had its own lineup for a while now, and with the brand getting the axe, Saturn as an asset is really just a distribution network.

      • Heresy_Fnord says:

        @acarr260: @acarr260: Saturn’s aren’t merely rebadged Opels. You forget that Opel is owned by GM, not the other way around. Some cars like the Sky were designd in Europe to be an Opel, but others like the Aura, is actually a G6 platform. This is all really moot as Saturn will either be bought and continue on or it will continue under it’s own name. Don’t speak when you don’t know what is going to happen.

  6. paradisefound24 says:

    I believe the tax incentives will be invalid – the dealers are going to have to unload the cars without the car company behind them… and that means that technically, they can’t sell them as “new.” Instead, they’re going to have to sell brand-new cars as “Used.”

    Which could potentially drop the price further, but the tax incentives probably won’t help.

    • mac-phisto says:

      @paradisefound24: i don’t think so. in my state, a previously untitled vehicle is “new”. unless the dealer buys the car from the manufacturer on paper, it’s still new. even if the owner runs it on a dealer plate for 4 years & puts 200,000 miles on it, that car is still new (according to the law in my state) provided it has never been titled.

      i guess i don’t see why a dealer would transfer the titles into their name. i don’t know a single dealer who does that.

    • acarr260 says:

      @paradisefound24: You have no idea what you are talking about. Completely wrong.

    • Stephmo says:

      @paradisefound24: What everyone else said – the manufacturer’s status has nothing to do with the newness of a vehicle.

      About the only thing that might be in question are brass hat vehicles – and that’s a BIG if. It would depend on whether or not states really wanted to revoke manufacturer tag statuses and require actual titling with the status of the company in question. Although I really doubt that’s what you had in mind. Unless you really want to say you’re suddenly concerned for company cars that would potentially be coming through the auction pipeline? Because you know that’s like .000000rounding of new car sales, right?

  7. The_IT_Crone says:

    You could get an extended vehicle warranty from a third party.

    I hear they are all the rage these days.

  8. downwithmonstercable says:

    I was under the impression the government is backing the warranties now. Also, wouldn’t dealers just sell unsold inventory to other delaers that aren’t closing? I doubt they’d let cars go to auction.

    • YouDidWhatNow? says:

      @downwithmonstercable:

      …if other dealers aren’t moving the cars they already have, they’re not going to be interested in buying more.

      Having said that, if they did go to auction, I am sure the remaining dealers would be present and buying at those auctions…

      • downwithmonstercable says:

        @YouDidWhatNow?: Ahh, didn’t really think about that. But, I bet they’d buy if the prices were discounted enough. That, or like you said, they’ll be at the auctions…

  9. techstar25 says:

    Right now deals are great because dealers are able to get incentives FROM THE MANUFACTURER. For example, Chrysler is offering like $6000 off MSRP, but those are incentives from the manufacturer, not the dealership. I expect that eventually the automakers will cut loose the dealerships and end the incentives. Then dealers will have no reason to sell you a car below invoice anymore. At best, we’ll be able to get cars for invoice, but why would they sell them any lower? Why would the dealership sell at a loss? How does that help them?
    Sure, we’ll see plenty of “Going-Out-Of-Business-Sale!” signs, but the prices will be just like the Circuit City sales.

    • nataku8_e30 says:

      @techstar25: Because when your franchise agreement ends, you can’t sell cars to the public anymore. Selling a car at a partial loss is better than having a car you can’t sell at a 100% loss. Also, at the very worst, these guys have to sell for as little as competing dealerships.

      • YouDidWhatNow? says:

        @nataku83:

        It’s called “cash flow’ – which is especially important when you’re in the red. Short-term losses are preferable in the light of getting money flowing around so you can make payroll and keep the lights on. Distressed businesses of all types will sell things under cost in order to preserve some kind of working cash flow.

  10. The Cheat says:

    Wouldn’t this just screw the company financing the floorplan as well as the dealership? The dealer buys the cars at 0% interest for say 30 days through a financer. If they don’t sell the cars, they start paying interest, if they default on the payments, their creditor takes them back.

  11. merist says:

    Well, if you want a Chrysler with a VW warranty try this…

    [www.autoblog.com]

  12. Triterion says:

    I’ve had a GM for 10 years and I can tell you it will NEVER be “worth the risk to get a new GM” EVER! You’ll pay more than you saved in dubious repairs that are actually design flaws and should be recalled, but they never do that.

    • YouDidWhatNow? says:

      @Mad Dog McCree:

      Thanks for your anecdotal analysis of the entirety of GM. The millions of GM cars & trucks out there that never needed any work at all other than normal wear items must all be flukes.

      • William Brinkman says:

        @YouDidWhatNow?: Except that’s not the case. Read Consumerist’s parent company- Consumer Reports.

        • YouDidWhatNow? says:

          @William Brinkman:

          …”except that’s not the case?” So, there are no GM cars & trucks that never needed any work at all other than normal wear items?

          I get that automakers are ranked on reliability, and as a deviation from some “average” they get plussed or minussed. I think the point is that, first of all, the OP in this thread made a generalization from a single anecdote, which any Consumerist reader should realize is a red herring (one I can counter with GM vehicles I personally know of in my family that have been flawless). Second, I think the “real” deviation from the average in terms of reliability is actually very, very small – it’s kind of a reverse-lottery in a way. If you are the exceptionally unlucky person to get the bad vehicle, well, you won the anti-lottery. But your chances to win (lose) that lottery with GM are (making this up) 1 in 10,000 as opposed to 1 in 10,500. Or something like that.

          I just think that people tend to get way too wound up over stats like those.

        • etla says:

          @William Brinkman: CR is a great resource for deciding on a car if your values and needs in cars match CR’s. However many people rank things differently than the editors at CR when it comes to cars. For those people CR isn’t necessarily the best resource. Nothing wrong with that, transportation and multi thousand dollar expenses are personal things; no reviewer is going to be all things to all people.

  13. Shoelace says:

    Buy a dubious-at-best product for tens of thousands of dollars from a dealer who’s going out of business?

    I don’t think so.

    • YouDidWhatNow? says:

      @Shoelace:

      The dealer has never really mattered when it comes to vehicles. The warranty comes from the manufacturer, not the dealer, so it makes little difference to the consumer if their local dealer goes out of business…your warranty is just as good at the dealer in the next town over.

  14. CityGuySailing says:

    I just read that general liability is limited or non-existent for Chrysler, and soon to be GM. This is a really bad thing. I am steering clear of these manufacturers.

  15. Onion_Volcano says:

    All the existing lots w/inventory should just become pick a part junk yards.

  16. TouchMyMonkey says:

    Most likely, the condemned will try to sell their inventory to the non-condemned. If that deal stinks, they could try to get a better one from the public. The question is whether I would buy a new Chevy for, say, 50% off. If I needed a new car, why not at least give it a look? Even GM’s cars will usually run under basic maintenance for the first three or four years before requiring anything major. After that, it shouldn’t be much trouble finding, say, an alternator, for a few years after that.

    • pjorg says:

      @HurtsSoGood: I have to agree. Sometimes people visualize driving “inferior” cars off the lot and things start falling off the car on the drive home, but that’s not really realistic. A brand new can be reasonably expected to provide several years of trouble-free service with only routine maintenance work.

      Before everyone starts, I will acknowledge that this is not universally the case and that there are such things as lemons, which the manufacturer should be held responsible for. Yes, if the manufacturer is out of the picture that could be a problem…but for 50% off (the figure HurtsSoGood used above), maybe it’s worth the risk?

  17. LoganAdams says:

    Even if Chrysler were going out of business tomorrow, I’d be willing to buy one of their Jeep Wrangler Unlimiteds. They’d just have to be willing to sell it for $4,000.

  18. Trai_Dep says:

    So if I have this straight, the car companies are doing to the dealerships what the dealerships have done to potential customers from day one.
    Sounds like street justice to me.

  19. humphrmi says:

    There’s a price for everything, whether the company is going out of business or not (and in this case, most likely not.) OK would you buy a Chrysler with a questionable warrantee and future support for $30,000? $20K? $10K? $5K? Heck, drop it to the right price, and I’ll buy it without a warrantee. The question is, will they offer prices like that. And those prices are set by the market. If they offer their cars at 50% off and don’t sell them, they will have to try 60% off, then keep going up with the discounts until they find buyers. And if buyers jump in at 60% off and you wanted to wait ’till 70%, so be it – they have more tolerance for risk than you do. Yay them.

    Funny the perspectives that a few years of Economics in college give you. :)

  20. juri squared says:

    I’d be all over this, but they’d have to have a car I actually want first.

    • barb95 says:

      @jurijuri: agreed. I was looking at their cars and couldn’t find one I really liked. But for free, I’ll take anything! ; )

  21. mzs says:

    I think mainstreet.com is not getting it. Typically dealerships must buy a certain amount of parts. That is the inventory that will not be bought back. Instead they finance the vast majority of the new cars on the lot at low rates from the manufacturers. Typically when a dealership goes under, the manufacturer does not like the numbers of the dealership, or they end the franchise agreement for any reason (such as becoming a different dealership) the manufacturer takes the cars back and redistributes them to other dealerships.

    Is mainstreet.com saying that the manufacturers will not take those financed cars back and the dealerships are still expected to pay the finance charges while the franchise agreement is voided and the manufacturer no longer pays the the dealership the financing incentive and the rates balloon after the typical 12 mo and 18 mo dates?

  22. H3ion says:

    According to news reports, the local banks that provide customer financing for cars are terminating their deals with the closing dealerships so a potential customer is going to have to obtain his own financing (a smart move anyway) or pay cash regardless of the price. That’s probably going to hurt sales as will customer loyalty to a particular dealership. (Stop laughing. It does exist.)

    It’s also preferable for the dealer to get off his floor financing as quickly as possible. I don’t know how the auto manufacturers work but personal guarantees by the owners of the dealership and continuing interest payments are one heck of an incentive for getting inventory off the lot, even at a loss.

  23. trujunglist says:

    Challenger here I come! Wheeeeee

  24. Trick says:

    People are not buying cars because they don’t have money, don’t want to buy a Government Motors made car and chances are their own car is doing just fine.

    For all the good dealers out there who will more than likely remain in business, their are so many bad scumbag dealers that are getting what they deserve.

    I could buy a new car right now and if I did, it sure as hell wouldn’t be GM/Chrysler…

  25. the lesser of two weevils says:

    One car I think would be a particularly good steal right now is the Pontiac Vibe. Considering it’s a clone of the Toyota Matrix you’d be able to get parts and service no matter what happens, and the reliability has been so high on that car you wouldnt have to worry much about the warranty issues anyways.

  26. PLATTWORX says:

    “Circuit City didn’t really show us the price love, now did they?”

    Um, I think the Consumerist staff is saavy enough to know that the out of business sale at Circuit City was not held by them, but a liquidator that was in it to get the MOST for every item, like most modern retail out of business sales.

    These dealers are mostly family owned and need to raise cash to pay for these cars, so they WILL need to slash prices. In fact, some won’t be able to offer factory rebates after a while so they need unload the cars NOW, especially with Chrysler dealers.

    Come on Consumerist, you just used an apple and an orange to make your point. Not fair.

  27. Boogaloo2 says:

    I saw Chrysler is offering $4000 cash back. A) good luck getting that check in the mail B) it’s $4000 off a car that is already about $8000 more than it should be to start with. No thank you Chrysler.

  28. bananaboat says:

    Yes, I saw a soon-to-be ex-Chrysler dealership ad today. Save $6500 on a loaded 2008 truck. Hmm, the same savings as last year and this “new” vehicle is almost 2 years old!

  29. I Love New Jersey says:

    Bad cars that nobody wants? Sounds like a bad deal.

  30. MooseOfReason says:

    But if either of them go out of business, and the government has a majority stake in it, wouldn’t the warranty be backed by the US government?

    Ooh, yay…

  31. f86sabre says:

    Does anyone know of a site out there that is keeping tabs on the actual deals people are getting? Be it a forum or other site. I’m curios to see what will really happen as the liquidation sales people are talking about really start happening. If a car or truck (I kind of need a dirt cheap truck) prices get into the silly zone I might jump, warranty or not.

  32. econobiker says:

    Hundreds of car dealers going out of business with thousands of cars to flog off.

    Anyone think this might be a problem in regards to honest sales???

    On the upside a couple of items:

    1. all of the very stupid sub-prime borrowers are either worrying about their forclosed home mortgages or cannot even touch credit now so that will keep them out of the mix.
    2. Super scam dealership group “MR. BIG VOLUME BILL HEARD CHEVY!!!!!” is dead and gone.