Amid consumer doubt about the viability of General Motors and Chrysler, President Obama announced that the U.S. government will guarantee warranties on new cars purchased during a yet-to-be-defined restructuring period. In order to do so, an account will be funded with money from the automakers and a loan from the U.S. government. According to a statement released by the White House, “The cash contribution will be 125% of the costs projected by the manufacturer to satisfy anticipated claims under the warranty issued on that vehicle.”
If GM or Chrysler goes belly up, a program administrator will “identify an auto service provider to supply warranty services.”
The government’s warranty back-stop is all well and good, but it doesn’t go far enough. As I’ve noted previously, the failure of one or more of the Big Three could have significant repercussions for consumers who find that they’ve purchased a lemon. Although lemon laws vary greatly from state to state, the President’s Auto Task Force should have made provisions for the federal government to back-stop lemon buybacks and compensation.