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]
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Comments:
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?
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.
@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.
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.
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?
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.
@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.
You could get an extended vehicle warranty from a third party.
I hear they are all the rage these days.
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.
@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.
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.
@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.
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.
@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.
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.
@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.
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.
@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.
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.
All the existing lots w/inventory should just become pick a part junk yards.
...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...
@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.
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.
@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.
@RStui: Sarcasm aside, many credit unions offer good no-deductible extended warranties, as well as really good financing rates.
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.
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.
@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?
@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...
@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.
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.
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. :)
..."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.
@pjsammy: Go buy a G8. Immediately. At 19k (15.8k if you can get the employee discount) it's a steal.
@sirwired: The federal gov't already agreed to back the warranties, so they are a completely moot point.
@minsky: 50% off means a huge loss on every car sold - sounds like a solid business plan if you like giving away money.
@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.
I'd be all over this, but they'd have to have a car I actually want first.
@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.
@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
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.").