Fear of a worthless car warranty

Shoppers are worried about buying a domestic car for fear the company they bought it from will go under.

NEW YORK (CNNMoney.com) — General Motors has repeatedly said that “bankruptcy is not an option,” largely because it’s afraid no one will want to buy from a carmaker that might go under, leaving customers with a worthless warranty.

Bankruptcy fear was the single biggest reason car shoppers avoided buying GM cars, according to a survey conduced in the fall by CNW Market Research.

Among GM owners who bought their next car from another manufacturer, 32% cited a potential bankruptcy as the reason. The next biggest reason – dealership or pricing issues – pushed away only 11% of shoppers.

If GM (GM, Fortune 500) were to go bankrupt, 97% shoppers intending to buy a car within six months said they would stay away from the automaker, according to a different CNW survey. The figure for Chrysler was even higher at 98%.

Not all bankruptcies are alike

Some bankruptcy supporters point to airlines like Delta that successfully emerged from Chapter 11 protection while customers continued to fly, but auto manufacturers present a special challenge.

A $300 plane ticket for a three-hour flight is one thing. $25,000 for a car you will drive for years is quite another. Consumers are concerned that the company might not be around when it’s time for warranty work.

Car shoppers’ concerns about automakers’ survival are justified, said Art Spinella of CNW. “It’s one thing when you hear about Circuit City,” he said. “I can always get my TV fixed somewhere else.”

But GM has given assurances their customers will be covered, no matter what. “We set aside funds to take care of our warranty obligations,” said spokeswoman Janine Fruehan, “so we always have, and we always will, honor our warranty commitments.”

“We understand those concerns,” said Chrysler spokeswoman Lisa Barrow, “but, really, the economy in general and access to credit are bigger concerns for our customers right now.”

Detroit automakers should do more to reassure customers their warranties will remain in effect even if the worst happens, said Phil Reed, consumer advice editor for Edmunds.com.

He suggested they could arrange for financially solid third-parties to back the warranties even if the carmakers can’t. But that would mean directly presenting consumers with that unpleasant possibility. “They don’t want to go there yet, publicly,” he said. “They’re not prepared to go there.” more

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