Should You Buy a GM Car Today?

Last Updated Jul 31, 2009 9:55 AM EDT

If you own or have thought about owning a
General Motors car, you're understandably worried
about the fate of the iconic giant. The nation's largest automaker and owner of ubiquitous brands like Chevrolet, Buick, and Cadillac, GM just declared bankruptcy in an attempt to stay afloat and has already borrowed billions of dollars from the U.S. government.


To the extent it can, GM says that it intends
to conduct business as usual from a customer's point of view, only as a smaller company. However, 'business as usual' is hardly possible under the circumstances. Here we shed some light on GM's situation and answer questions about whether you should take a risk on buying a GM product.

Is it safe to
buy a new car from GM?



Generally speaking, yes. The U.S. government has already href="http://www.treas.gov/initiatives/eesa/AIFP/WarranteeCommitmentProgram.pdf">guaranteed
warranty coverage for all GM cars and trucks bought from March 30 to June 30 to encourage people to keep buying them. And that period could be extended to cover purchases that are made while GM is in bankruptcy court.

But there are some reasons for caution, including the
likelihood of falling resale values, and the fact that GM plans to cut way back on its number of dealerships to reduce costs (more on these later). The biggest reason for caution, however, is that if GM is unable to successfully restructure, the company could be liquidated and its assets sold off to pay creditors. In this unlikely worst-case scenario, the fate of all of GM’s brands would be uncertain, not just the ailing ones that GM plans to cut. Parts and service for GM cars would still be available, but you might have to go to independent garages for service, instead of GM dealers.

As long as the possibility of liquidation exists, the most
cautious shoppers might want to buy a different brand or wait a short amount of time to see what happens first with the company. Ideally, GM will emerge from bankruptcy a short while after it has finished reorganizing and shoring up its finances, after
which there would be less uncertainty involved in purchasing a GM car.

What will
happen to resale and trade-in values?



There will likely be a short-term drop in resale values
because of concern about GM’s viability, but in the long run, used-car values are driven by supply and demand, and GM has already announced it is cutting back on production in the second and third quarter, which should help.



But GM recognizes that potential buyers may be worried about
resale and trade-in values, so since April 1 and
running through June 1, GM is offering new-vehicle buyers up to $5,000
to cover the difference if, in the future, they owe more on their loan than
their trade-in is worth because resale values have dropped.



The offer applies to new purchases from Chevrolet, Buick,
Pontiac, GMC, and Saturn (Saab, Hummer, and Cadillac models are excluded). GM
has already extended the offer once, so it could do so again. To qualify, you
must have made all your loan payments for at least half of the original term of
your loan. After that, when you’re
ready to trade in, you compare your principal loan balance versus the value of
your used vehicle, as estimated by the latest National Automobile Dealers
Association href="http://www.nadaguides.com/usedcars.aspx?LI=1-21-0-5002-844-923-59881&l=1&w=21&p=1&f=5004">Used
Car Guide. If you owe more than the vehicle is worth, href="http://www.gm.com/total-confidence/car-value/?brandId=gm&src=gm_com&evar24=Gmdotcom_offers_banner">GM’s
Vehicle Value Protection Program will help make up the difference.

It’s an
attractive offer, but one catch is you only get the full benefit if you trade
in your vehicle for another new GM vehicle at the dealership. With a trade-in,
you can get up to $5,000 toward paying off your old loan. But if you sell your
vehicle privately to another individual, GM will only give you a maximum of
$2,500 toward paying off your old loan. Also, the offer only applies if you
take out a loan to buy your car.

What about
getting repairs done to my car? Will parts be harder to find now?

Even in the worst-case scenario, which is that GM and all
its dealers disappear, you shouldn’t
have any trouble getting parts and service from independent garages, which will
likely have parts for GM cars for years and years to come. But if, like many
car owners, you like to get service from your local dealer, you might have some
problems. (Some owners of luxury cars with a lot of high-tech features also
prefer to get service through dealerships.) Probably the most obvious near-term
impact on customers of GM’s
problems is that GM plans to cut its number of
dealerships more than 40 percent by the end of 2010, from 6,246 in 2008
to 3,605, as it adjusts to selling fewer cars and fewer brands.

If your local dealer gets shut down, you’ll
likely have to travel farther to a more distant dealership
to get service under your car’s
warranty. On the other hand, if you already own a GM car whose warranty has
expired, you may not care as much if your local outlet closes.

Keep in mind that GM, Ford, and Chrysler are all closing a
lot of dealerships, so if convenience is a crucial factor for you, that’s
a big strike against the Big Three.

What can I do if I
really like my dealer and they close?



Many dealers have several different franchises, so if you
can bear to trust only one individual dealer, you may be able to stay with them
by switching to one of their other brands. The same is true for a particular
salesperson or service technician who has always gotten you the best deal or
treated you right — if
their dealership closes, you may be able to ‘follow’ the same person to another location. Ultimately, you may have to decide
which is more important to you — the
brand or the relationship?

What kind of incentives is
GM offering to get people to buy their cars? How good are they?

GM is currently offering zero-percent financing for up to 60
months for some models to its most credit-worthy customers, an offer which can
wind up saving you more than $6,000 in finance charges, according to the
company. Besides financing and the deal mentioned above protecting you if
resale values drop, GM is also offering href="http://www.gm.com/total-confidence/payment-protection/?brandId=gm&src=gm_com&evar24=Gmdotcom_offers_banner">a
form of insurance that will cover your car payment for up to nine months at
up to $500 per month, if you lose your job within the first two years of
ownership.

All told, Edmunds.com,
a widely used consumer auto shopping and research Web site,
estimates that GM incentives in April were worth an average of $4,063 per
vehicle, versus a U.S. industry average of $3,031. By comparison, Chrysler is
offering average incentives worth $4,288 per vehicle, while Ford comes in at
$3,636, according to Edmunds.

I read that
some GM brands are likely to be shut down no matter what happens. Is it safe to
buy one of those?



GM has said it is getting rid of its Hummer, Pontiac, Saab,
and Saturn lines. These ‘orphan’ brands could ultimately stay in business under new ownership, although right
now it looks unlikely. GM has said it doesn’t
know of any takers for Pontiac, although it says there are buyers potentially
interested in Hummer and Saab, and possibly Saturn.

In most respects, it should be OK to buy one of these
because the warranty guarantee is in place, and under the hood, most of GM’s
cars and trucks share engines and other parts with the brands that will likely
continue to sell new cars and trucks. That means the GM dealerships that stay
in business should still be able to service Hummers, Saabs, Pontiacs, and
Saturns in the future.

Might there be
some really good bargains on these orphan brands?


Could be, but don’t
count on it. Demand was already pretty low for Hummer, Pontiac, Saab, and Saturn, or else GM wouldn’t be
closing them. On a case-by-case basis, dealers are always more prone to deal if
they have a big inventory of unsold cars. Dealers borrow the money to finance
their inventory, so the longer a car sits, the more it costs them. If your
dealership has a really big lot full of Saabs that have been sitting there for
a while, it won’t
hurt to start negotiating. But a savvy dealer probably won’t
have a lot of inventory, in which case there may not be any fire sale.

So does all
this mean there’s nothing to
worry about buying a GM car?



It’s
not that there’s
absolutely nothing to be concerned about, but if your primary concern is being
left stranded somewhere because there are no parts available for your car,
well, that’s
extremely unlikely to happen. But resale values may take a hit, especially if
you’re
paying cash up front for your car, and servicing
your car may become less convenient with fewer GM dealerships around. So the
question you need to ask is: Do those issues bother you enough to outweigh the
generous incentives GM is offering now to buy its cars?


  • Jim Henry

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