Thursday, September 07, 2006

More car stuff.

GM has announced a new warranty. The previous warranty was 3year / 36,000 miles. Now it’s 3 year /36,000 miles bumper to bumper and 5 year /100,000 miles limited power train. Basically unless you’ve done something to screw them up or abuse them the engine, transmission and driveline are covered. Screw up and abuse probably include things like giving your pickup a lift and wearing the u-joints out or put a turbo-charger on your cobalt and burning up the engine. Or registering your corvette in a autocross league. Or never changing your oil etc.

There are three possible takes on this:

The Good: GM durability is much better than people think. So the buyer will figure that a 1000k warranty is worth $3000 when it’s only going to cost the company $500. (on average)

The Bad: The public thinks GM makes unreliable cars. To get sales up GM has to alleviate their fears.

The Ugly: Sales are slowing down and GM needs to put some money on the hoods to move metal. Rebates lower profits NOW warranty lowers profits LATER. By extending the warranty GM is borrowing against future earnings. This is fine, unless the customer values the warranty at less than the warranty will cost the company. To keep the balance sheet looking good GM may be underestimating the cost of the new warranty. (I don’t think that this is happening. I’ve seen the long term warranty costs for the full sized pickup and utilities. They’re a lot lower per vehicle than an extended warranty.) The real question will be how much the new warranty will be worth to the customer.

This will help GM sales, especially against the Koreans. It will take time to tell if it makes us money in the long run. I think the most likely outcome is that everyone will move to a 5year/100,000 mile power train warranty. Customers aren’t going to pay any more for their cars. This will in effect lower the price of the car since you get more for the same payment.

The biggest winner will be new car buyers. (obviously) The next biggest winners will be companies that have warranty that are lower than people think. I think GM will be okay here. I think Ford and Chrysler will not. Toyota and Honda may not follow along. If they do I don’t think they’ll get much for it. I think the Koreans will take the real hit. They were using the higher warranty to differentiate themselves. They’ll either have to raise it again or loose some sales.

6 Comments:

Blogger Simon Hawk said...

GM should have put the 5year/100,000 mile warranty on their abominations along time ago.

Just keep waiting to buy that new car, it won't be long and you'll be able to a brand new GM with a large pizza.

7/9/06 09:09  
Blogger Jack T Briggs said...

I'm guessing the bad and the ugly. I always thought GM had low quality cars in the first place. And car sales suck for everyone right now. They are trying to move metal, just like you said.

7/9/06 09:17  
Blogger Garble said...

This is one where I have to have faith in the bean counters. To my mind it looks like a mixed message. Our product is so good we’ll stand behind it for 5 years/your product is to bad you have to put a monster warranty on it. On the money side this is a price cut. That means lower margins and it’s a price cut we can’t really back away from. My hunch is that this will end up as the new standard warranty for the industry. I halfway suspect that we're doing this to put the screws to DCX and Ford.

7/9/06 09:49  
Blogger Jack T Briggs said...

Let's hope it works. Something needs to get done. People need to start buying cars again to pull the auto industry out of this funk. And I don't care if it's GM Ford or what. As long as it's american. If not, Michigan is gonna stay in this tail-spin and end up a ghost town.

7/9/06 09:56  
Blogger Jim Brannick said...

It'll be interesting to see how the engineers adjust the planned obsolescence of the powertrain. GM (and other car manufacturers) have been manufacturing a product for decades that barely makes it past the warranty date/mileage before shit starts going all to hell. I'm talking halfway major shit, like a throttle positioning sensor (eg. just had that replaced on our Dodge work pickup... $250- for just the part! and it was 2 months past warranty), or a multitude of other problems. Fact is, such post-warranty problems may not be the norm, but it only takes a handful of people to have problems before word gets out and other people start getting turned off to the product.
I like this article. It's slightly dated (April of this year) but it's eyeopening when it comes to how far behind the US is when it comes to quality and dependability.
Best line:
"...Toyota became known for building around one-tenth the number of prototypes per production model that automakers such as General Motors would. The only way Toyota and Lexus could do this was by learning to engineer parts that don't fail."
And I agree with Jack, coming from a GM family, I'd prefer to buy American... I just don't want an American rolling turd.

7/9/06 10:19  
Blogger Jim Brannick said...

Oh, and that article had something good to say about Buick...
it just didn't mention Garble by name.

7/9/06 10:21  

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