General Motors filed the largest bankruptcy of any industrial company in US history this Monday, and alongside it, unveiled plans to close more dealerships, factories, and support services across the nation.
Until just recently, GM was the largest auto maker in the world, putting its vehicles across countless stretches of roads, and in the garages of millions of families. How will the bankruptcy affect those previous consumers and futures ones?
Warranties will remain fully in effect on all cars that are still covered. GM says its sales and service operations won’t be affected by the bankruptcy, and it hopes that a smaller, more competitive “new GM” will emerge from Chapter 11.
The chances of GM being liquidated during its bankruptcy remain slim, especially given that the Government has injected over $50 billion into the company, and owns a 60 percent stake. To minimize concerns about GM standing behind its products in the future, the government has pledged to back up all GM warranties if necessary.
Resale values could take a hit given the tarnished brand image and uncertainty about the company’s future. After Chrysler declared bankruptcy in April, the three-year resale value of its vehicles fell by the equivalent of about $1,500 on a car that cost $25,000 when new.
Possible fire sales GM will be eager to move inventory through the dealer channels, meaning there could be incentives and discounts. Dealers that are shutting down will generally have months to wrap up their business, which will allow them to draw down their inventory gradually, with incremental discounts. That’s a sharp contrast to some Chrysler dealers that had to liquidate their stock with less than two months’ notice.
Discontinued Models GM plans to close a number of models, including its Pontiac division. It also said it will sell Saturn, Saab, and on Tuesday sold Hummer to a Chinese car company. This could create deals that are too good to be true, however. If Pontiac isn’t here next year, or if Hummer changes its name, that deal you got on a ’09 H3 may not be such a deal if it cannot be resold later. Typically consumers value things less when they considered a close-out.
Plenty of dealerships will be left when all is said and done. No doubt GM will cut down its network, but it will still have 3600 dealers around the country, which will leave it with more than twice the dealers as Toyota – they don’t have a problem getting cars to their customers. Still, if you have a GM car or plan to buy one, it pays to know if your dealership is going to close, so you can figure out where you’ll need to go for service. Many mechanics can do work on your car, but you’ll need a dealership for warranty or recall work.