If you have not been aware of the recent news, General Motors and Chrysler have asked the government for more money, but the Obama administration is pushing back. The government’s task force has determined that the restructuring plans submitted by the companies in return for continued financial support are inadequate.
As a result, the Chairman and CEO of General Motors, Rick Wagoner, is resigning from his position and Chrysler is heading towards a possible merger with Fiat. With GM, the government will provide the company with the funds it needs to operate for sixty days. There is a possibility that General Motors will not survive in its current form two months from now. Chrysler, on the other hand, will only have thirty days to turn around a plan for moving forward.
Bankruptcy may be the answer for both companies. To prevent consumer trepidation about buying a car from a company that might not support its obligations like warranties and maintenance, the Treasury Department has stepped in. The government plans to back warranties on all GM and Chrysler vehicles purchased while the companies exist in their current state of collapse or restructuring.
If you typically buy cars from GM and Chrysler, would you be more or less inclined to purchase a vehicle right now? Are you confident your car will receive the support it needs from these companies or the government throughout its usable life?
You can read the full text of President Obama’s remarks today about General Motors and Chrysler here.
This is today’s big news, and you’ve probbably heard about it already. This morning, President Bush approved three-year loan to GM and Chrysler which would give these companies $13.4 billion now and $4 billion in February. There are strings attached.
Although the loans have terms of three years, the government will require the companies to pay the balance back in full by March 31 if the corporate leaders cannot find a path to stability. The government will become part owners of the companies and will have oversight of executive decisions. The deal also requires that the automakers limit compensation and benefits, provide competitive wages, and eliminate the “jobs bank.”
The jobs bank allows union auto workers to still receive pay after being laid off, and even the Japanese, non-union automakers have a similar policy. The union has suspended the jobs bank already.
Do you think the automakers are making enough concessions in exchange for these loans? My concern is that even with this money, one of largest government interventions in a supposedly free market economy, the industry might not be salvageable.
Lately I’ve noticed commercials for a special car buying incentive offered by Chrysler: a gas credit card that guarantees that you will pay no more than $2.99 for a gallon of gas for three years. The offer, good between now and June 2 on most Chrysler, Jeep and Dodge vehicles preys on our fear and anticipation of higher gas costs this coming summer.
But the numbers don’t work out all that well. First, in order to qualify for the $2.99 gas card, which is good for regular unleaded gasoline, diesel, or E85, you must relinquish your option to take advantage of any other purchasing incentive. Assuming the average gas price over the next three years is $3.99, and it could be lower once the political environment changes, one might save a couple hundred dollars a year. But how is this worthwhile if you have to give up a $2,000 (or more) cash back deal to qualify? A quick search of Chrysler incentives shows that dealers are offering up to $3,000 cash back. In other locations offering you can find incentives offering $5,000 cash back.
Additionally, according to the rules of this “Let’s Refuel America” incentive, your gas savings would be limited to 12,000 miles a year. After that limit, you would have to pay full price.
It makes no sense to give up a $5,000 discount in return for the *possibility* of saving a few hundred dollars a year. Keep in mind that three years from now, the price of gas may be much less than $2.99. You would have given up a significant incentive for very little benefit.
The perceived savings on the cost of gas is higher than the numbers reveal. Chrysler is simply seizing the opportunity to present a deal that looks nice to customers concerned about rising gas costs, but this deal is much better for the dealer than for the buyer.
If you’re concerned about gas savings and you’re in the market for a new car, opting for a vehicle with just a little more fuel efficiency compared to the Chrysler cars and trucks will be a better option for saving money on gas. Just a 3 mpg improvement will save $3,000 in the first three years, and then would continue saving money long beyond the expiration of the terms of this deal.
Photo credit: joebeone
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