How an Automaker Bankruptcy Would Affect You


U.S. automakers are on the edge of bankruptcy, but it actually might be a good time to buy a car. And the government is taking measures to ensure that buyers who do so are protected.

New Deals
As more American consumers cut spending and put off major purchases, car inventories at dealerships are rising.

It’s been increasingly difficult even for consumers with excellent credit histories to get access to credit for a new car. But the government is making an effort to improve the availability of credit to credit-worthy consumers who want to go car shopping. The Obama administration is expanding funding available for retail auto loans by launching the Term Asset-Backed Securities Loan Facility. Under this plan, the Federal Reserve will help issue asset-backed securities to help consumers get auto loans, student loans, credit card loans, or small business loans.

For their part, automakers are offering to cover payments if a carbuyer loses her job. General Motors (Stock Quote: GM) and Ford (Stock Quote: F) are offering payment protection plans, plus special deals, financing and cash back. Korean automaker Hyundai's Assurance programs also allow consumers to return their cars if they experience financial hardship. For more information, check out MainStreet's rundown of the payment protection plans.

A Warranty Bailout
If you do buy a car now, there’s no need to worry about your warranty. The Obama administration says it will stand behind new cars made by GM or Chrysler. The federal government's warranty commitment program will help pay for repairs during the companies’ restructuring period.

“Consumers thinking about buying a GM car and workers and communities that depend on this iconic American company should have confidence that GM can and will come out of this crisis as a stronger, leaner and more competitive car company,” according to President Obama’s plan.

Dealerships Dying Off
Despite these initiatives, car dealerships are closing at an alarming rate. 881 dealerships closed in 2008, according to Detroit-based market research firm Urban Science, compared with only 341 dealership closings five years ago. The five states with the largest decline in number of dealerships were Rhode Island, California, Massachusetts, Minnesota and Connecticut, says Mitch Phillips, a director at the firm.

If a local dealership is about to close, you may actually be able to score a great deal if they’re looking to sell off their inventory instead of returning the cars to the manufacturer. And if you’ve already bought a car and your local dealership closes, you should still be able to go to other dealerships for maintenance.


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