Government to Back Auto Warranties
It's a vicious cycle: US automakers (GM and Chrysler in particular) must drastically increase sales to have any shot at avoiding bankruptcy, but most Americans will not buy cars from a soon-to-be-bankrupt manufacturer. So, starting Monday, consumers who buy cars from GM or Chrysler will have their manufacturer warranties guaranteed by the Obama Administration. However, will government-backed warranties save these US automakers?
As a part of this Warranty Commitment Program, a portion of TARP funds will be used to back the warranties of any US automaker that elects to participate. Although Ford is not expected to participate, GM and Chrysler will surely welcome this program in an effort to boost consumer confidence. Still, I can't imagine that the effect of the Warranty Commitment Program will be enough to save GM and Chrysler from falling into bankruptcy. Indeed, even this warranty assurance will not dissolve the cloud of negative perception that currently surrounds these failing automakers.
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My guess is that the warranty program is not aimed at preventing bankruptcy in general, but rather to keep demand for these companies cars healthy enough that they can survive a bankruptcy reorganization and not have to go into liquidation.
While I am not a strict "no government spending" believer, I wander about this. How will the increased government spending effect the overall debt and economy issues?
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