Big `3 Bailout $ Update:12-14-08
RE: Big `3 Bailout $ Update:12-14-08
Will Car Owners Be Abandoned, Too?
[
][X(][:@][&o][:-][/align]by Kelli B. Grant, SmartMoney[/align]
December 2008[/align][/align][/align]$ $ $ $ $ $[/align]While you probably won't see an ad in the used car section of the classifieds, several lines of vehicles could soon be up for sale as the Big Three auto makers near a bailout deal with Congress.[/align]
[/align][/align]Over the course of the government's negotiations with the top execs at Ford, General Motors and Chrysler, it's become clear that the ailing auto makers will have to undergo radical restructurings. Despite a lack of details thus far, it’s a safe bet that they'll have to streamline operations and sell off some vehicle brands, says James Brock, a professor of marketing at the Miami University in Oxford, Ohio. “Selling a small number of cars across a large number of models is not the way to make money in this economy,” he says. “They need to cut brands, and cut car models within brands.”[/align][/align][/align]General Motors has the most room and incentive to make cuts, with eight brands that bring in such meager sales that they account for less than a quarter of the U.S. auto market, says Tom Libby, senior director of industry analysis for J.D. Power and Associates. Niche brands Hummer and Saab are at the top of the sales list; while Saturn’s independent factories and dealerships make it an easy target for either a sale or model consolidation, he says. Pontiac could also get put on the auction block, although it’s more likely to be downsized into a one- or two-model brand, says Libby.[/align]Meanwhile, Chrysler could sell Jeep, the most independent of its brands (the auto maker's brands share factory and dealership space with one another, but Jeep has a few solo locations), predicts Lincoln Merrihew, senior vice president of automotive for market researcher TNS North America. Even Ford the most financially stable of the Big Three has said it’s open to selling Volvo, says Jack Nerad, executive editorial director for Kelley Blue Book. Ford bought the Swedish-born brand in 1999. “[Volvo] can operate independently, and so those ties can be cut easily,” he says.[/align]Of course, all of these moves will take time. The most likely buyers of these brands would be foreign auto makers who will want to do a great deal of due diligence before investing in the flagging U.S. auto market, says Merrihew. The gas-guzzling lineup at Hummer, for example, would be a tough sell given the wild swings in fuel prices and a growing push toward fuel efficiency.[/align]For consumers, such deals offer a mixed bag of consequences. Here’s what you need to expect if you currently own or are considering purchasing a brand that may be on the block:[/align]Don't expect dramatic vehicle changes
When an auto maker buys a new brand they tend to focus on streamlining the operations before trying to adjust the cars’ look, operation or price, says Merrihew. In March, for example, Ford sold Jaguar and Land Rover to Indian auto maker Tata Motors. “That deal is done, and you don’t see really any change in direction,” he says. “There are enough successes that this is not a scary situation.”[/align]Warranty coverage will remain intact
A warranty is a contract, one any new owner of your car's brand must abide by, says Libby. Future car buyers may see different terms, but it’s unlikely that any major changes would come through immediately.[/align]Difficulties finding dealerships for warranty repairs
While your warranty coverage may continue seamlessly, finding a dealership to do the in-warranty repairs may be a lot more difficult. Dealerships are one of the few casualties in a brand sale, particularly when one location sells multiple brands. Current car owners may have a longer drive to the nearest dealership that's authorized to do in-warranty repairs at least until the new auto maker owner has a chance to build its own dealership base, says Nerad.[/align]Bonus incentives for car buyers
“As long as we are in this economic funk, we’re going to see a whole lot of competition and a whole lot of incentives,” says Nerad. And car buyers can expect even bigger incentives on brands in transition, as auto makers look to clear their lots of discontinued models and boost the sales numbers (and in turn, the attractiveness) of brands that are up for sale.[/align]Problems terminating leases
“If you’re leasing, you have to return the car to the dealership at the end of the lease period,” says Libby. “That’s a problem if your dealership isn’t around.” Should the brand you’re leasing be sold, ask the dealership how to handle the transition.[/align]Worst-Case Scenario: Brand Destruction
Even though unloading vehicle brands will likely be a tough sell in today's market, auto makers will try to avoid shutting down a brand at all costs, says Nerad. “Dismantling a brand quickly becomes very expensive,” he says. GM reportedly spent close to $1 billion to phase out Oldsmobile from 2001 to 2004. Discontinuing an entire brand also has disastrous effects for consumers. Here’s what you need to know:[/align]Fading warranties
While auto makers still cover warranties for a defunct brand, it becomes progressively harder to find replacement parts, not to mention mechanics willing to work on the cars, says Nerad.[/align][X(]Plunging car values [X(]
An orphaned car brand won’t fetch as much on the secondary market, says Brock. Quite simply, individual buyers and used-car dealerships are less willing to buy a car that may be difficult to repair or re-sell down the line.[/align]
[
][X(][:@][&o][:-][/align]by Kelli B. Grant, SmartMoney[/align]December 2008[/align][/align][/align]$ $ $ $ $ $[/align]While you probably won't see an ad in the used car section of the classifieds, several lines of vehicles could soon be up for sale as the Big Three auto makers near a bailout deal with Congress.[/align]
[/align][/align]Over the course of the government's negotiations with the top execs at Ford, General Motors and Chrysler, it's become clear that the ailing auto makers will have to undergo radical restructurings. Despite a lack of details thus far, it’s a safe bet that they'll have to streamline operations and sell off some vehicle brands, says James Brock, a professor of marketing at the Miami University in Oxford, Ohio. “Selling a small number of cars across a large number of models is not the way to make money in this economy,” he says. “They need to cut brands, and cut car models within brands.”[/align][/align][/align]General Motors has the most room and incentive to make cuts, with eight brands that bring in such meager sales that they account for less than a quarter of the U.S. auto market, says Tom Libby, senior director of industry analysis for J.D. Power and Associates. Niche brands Hummer and Saab are at the top of the sales list; while Saturn’s independent factories and dealerships make it an easy target for either a sale or model consolidation, he says. Pontiac could also get put on the auction block, although it’s more likely to be downsized into a one- or two-model brand, says Libby.[/align]Meanwhile, Chrysler could sell Jeep, the most independent of its brands (the auto maker's brands share factory and dealership space with one another, but Jeep has a few solo locations), predicts Lincoln Merrihew, senior vice president of automotive for market researcher TNS North America. Even Ford the most financially stable of the Big Three has said it’s open to selling Volvo, says Jack Nerad, executive editorial director for Kelley Blue Book. Ford bought the Swedish-born brand in 1999. “[Volvo] can operate independently, and so those ties can be cut easily,” he says.[/align]Of course, all of these moves will take time. The most likely buyers of these brands would be foreign auto makers who will want to do a great deal of due diligence before investing in the flagging U.S. auto market, says Merrihew. The gas-guzzling lineup at Hummer, for example, would be a tough sell given the wild swings in fuel prices and a growing push toward fuel efficiency.[/align]For consumers, such deals offer a mixed bag of consequences. Here’s what you need to expect if you currently own or are considering purchasing a brand that may be on the block:[/align]Don't expect dramatic vehicle changes
When an auto maker buys a new brand they tend to focus on streamlining the operations before trying to adjust the cars’ look, operation or price, says Merrihew. In March, for example, Ford sold Jaguar and Land Rover to Indian auto maker Tata Motors. “That deal is done, and you don’t see really any change in direction,” he says. “There are enough successes that this is not a scary situation.”[/align]Warranty coverage will remain intact
A warranty is a contract, one any new owner of your car's brand must abide by, says Libby. Future car buyers may see different terms, but it’s unlikely that any major changes would come through immediately.[/align]Difficulties finding dealerships for warranty repairs
While your warranty coverage may continue seamlessly, finding a dealership to do the in-warranty repairs may be a lot more difficult. Dealerships are one of the few casualties in a brand sale, particularly when one location sells multiple brands. Current car owners may have a longer drive to the nearest dealership that's authorized to do in-warranty repairs at least until the new auto maker owner has a chance to build its own dealership base, says Nerad.[/align]Bonus incentives for car buyers
“As long as we are in this economic funk, we’re going to see a whole lot of competition and a whole lot of incentives,” says Nerad. And car buyers can expect even bigger incentives on brands in transition, as auto makers look to clear their lots of discontinued models and boost the sales numbers (and in turn, the attractiveness) of brands that are up for sale.[/align]Problems terminating leases
“If you’re leasing, you have to return the car to the dealership at the end of the lease period,” says Libby. “That’s a problem if your dealership isn’t around.” Should the brand you’re leasing be sold, ask the dealership how to handle the transition.[/align]Worst-Case Scenario: Brand Destruction
Even though unloading vehicle brands will likely be a tough sell in today's market, auto makers will try to avoid shutting down a brand at all costs, says Nerad. “Dismantling a brand quickly becomes very expensive,” he says. GM reportedly spent close to $1 billion to phase out Oldsmobile from 2001 to 2004. Discontinuing an entire brand also has disastrous effects for consumers. Here’s what you need to know:[/align]Fading warranties
While auto makers still cover warranties for a defunct brand, it becomes progressively harder to find replacement parts, not to mention mechanics willing to work on the cars, says Nerad.[/align][X(]Plunging car values [X(]
An orphaned car brand won’t fetch as much on the secondary market, says Brock. Quite simply, individual buyers and used-car dealerships are less willing to buy a car that may be difficult to repair or re-sell down the line.[/align]
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