auto

Don't fear car companies' bankruptcies

Some consumers are reluctant to buy cars and trucks from Chrysler and GM. They could go bankrupt, even though the U.S. government is doing its best to reassure everybody it's safe to buy from them.

Since Jan. 1, both companies have operated on bailout money from the U.S. Treasury while they restructure and downsize to the point where they can be profitable at lower sales volumes. The government could still force both companies into bankruptcy, either by withdrawing government loans and allowing them to run out of cash, or as part of a restructuring plan.

That uncertainty could help rivals like Ford and also import brands like Toyota, Honda, Nissan and Hyundai, even though analysts say consumers probably wouldn't have much to worry about, even if Chrysler and GM went bankrupt.

My advice is that if they were already on your shopping list, it's OK to buy from these companies. If anything, it's more of a buyer's market than ever, thanks to the latest round of discounts.

In addition, an auto industry task force appointed by President Barack Obama announced in late March that the U.S. government will guarantee warranties for Chrysler and GM to remove that hurdle for buyers who might be holding back on making purchases.

In practical terms, that means Chrysler and GM are contributing cash and the government is contributing loans to a special fund that will pay for warranty repairs on cars and trucks bought while the companies are restructuring.

Auto sales are so bad across the board -- for foreign as well as domestic brands -- that it's difficult to see how bankruptcy fears are hurting Chrysler and GM, in particular.

In March, GM sales were down 44.5 percent from the same month a year ago, according to AutoData Corp. Ford sales fell 41.3 percent, and Chrysler fell 39.3 percent. Meanwhile, Toyota's U.S. sales also dropped 39 percent, and nobody expects them to go bankrupt.

However, below the surface, Chrysler and GM are suffering in terms of the future purchase intentions of consumers, or in this case, the lack thereof, says Art Spinella, president of CNW Marketing Research, Bandon, Ore.

Edmunds.com, an auto shopping and research Web site, reached a similar conclusion.

According to Edmunds.com, the number of online shoppers who say they intend to purchase a Ford product rose 12 percent in the first quarter of 2009, versus compared to the same quarter a year ago. Purchase intent for GM fell 19 percent in the same period, and Chrysler was down 15 percent.

Spinella says that purchase intentions for other specific brands, such as Volvo, Saab, Hummer, Saturn and Pontiac, also have been hurt, and there's no wonder. Ford is trying to sell Volvo. GM is trying to sell Saab and Hummer. GM also has said it could spin off or shut down Saturn.

"Bankruptcy headlines and media coverage of possibly shuttering Hummer, Saturn and Pontiac offer little encouragement to future car buyers to consider these brands," Spinella says in a CNW newsletter. Spinella says his comments were based on a national survey of more than 40,000 consumers who said they intend to purchase a new car or truck.

"(Purchase) intentions for GM and Chrysler are both down since these (government restructuring) talks began," said Jessica Caldwell, industry analyst for Edmunds.com. "It really shows people are worried about their futures."

 

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