Along with harsher demands, President Obama offered support Monday for General Motors Corp. and Chrysler LLC, hoping to soothe consumers' fears about buying new vehicles from automakers teetering on the brink of bankruptcy.
The main source of support is the Warranty Commitment Program, which has been designed by the Treasury Department to ensure that customers buying a new vehicle will still have a warranty even if GM or Chrysler slides into bankruptcy and is forced to restructure — or, even worse, liquidate its assets.
The president is giving Chrysler and GM more time to come up with stronger restructuring plans that involve renegotiating contracts with the United Auto Workers union and bondholders. But if that doesn't work out, a bankruptcy filing is imminent.
Many consumers — reasonably enough — say they wouldn't buy a car from a bankrupt automaker. So the government has taken steps to ensure that the buyers of GM and Chrysler cars won't be left out in the cold.
Here are some questions and answers about the warranty program.
Q: What exactly is this program?
A: Starting Monday, consumers who purchase a GM or Chrysler vehicle will have their warranties honored in the event that the maker of their car or truck goes into bankruptcy.
The government will finance the companies' cost to repair covered vehicles at the dealership or through a third party. The funds will be set aside in a separate federal account. The companies will provide 15 percent of their expected warranty costs, with the government covering the rest.
The funds are slated to come from the government's Trouble Asset Relief Program (TARP). The Treasury wouldn't say how much money it's putting up for the program, but it's expected to be in the millions — significantly less than the $17.4 billion in bailout money the companies have already received.
Q: I just purchased a car last week. Is my car covered?
A: Unfortunately, no. The plan is available for vehicles purchased during the companies' "restructuring period," which the Treasury is defining as beginning on March 30. The period will end when the companies emerge from restructuring — in other words, when they are viable without government help, or emerge from a bankruptcy.
Q: Are only Chrysler and GM cars covered? What about Ford and foreign automakers?
A: Any U.S. manufacturer is eligible to participate in the plan, though Ford Motor Co., which is not seeking government aid, is not expected to do so.
"Ford does not plan to participate in the program as we foresee no issues honoring warranties for current and future customers," said company spokesman Mark Truby.
Foreign automakers are not eligible to participate.
Q: How do I get repairs under the government-backed warranty?
A: Consumers don't have to do anything out of the ordinary. The program is primarily a financial one that would allow GM or Chrysler to cover the cost of repairing your car free of charge, or under terms of the warranty, should the companies enter bankruptcy.
Q: Will taxpayer money end up being used to repair people's cars?
A: Any court-ordered bankruptcy is likely to have a quick turnaround — versus the years of court proceedings often associated with bankruptcy. As a result, it's unlikely that taxpayer funds would have to be used to pay for warranty repairs.
Q: How does this differ from the warranty that would normally come with my new vehicle?
A: It isn't different — it's the same warranty that comes with the vehicle.
Q: Why is the government doing this?
A: Aaron Bragman, research analyst for IHS Global Insight in Troy, Mich., calls the program "a piece of a larger puzzle."
"The government's main responsibility here is to restore consumer confidence — that their job, home and investments are secure," Bragman said. "Whether or not that's going to make a difference remains to be seen."
