With all of the changes in the auto industry, many consumers are wondering what impact the current status of car makers such as General Motors (GM) will have on their warranties and their need for parts. GM and other car makers have undergone major changes over the past year, and these translate to changes for consumers as well.

Language of the Warranty

When a manufacturer has gone out of business, there's uncertainty about whether warranties and other commitments will be honored. It's important to retain all paperwork associated with your car purchase and warranty.

Even credit card statements, letters, recall cards, and sales receipts should be kept in a safe place where you can find them. The most important document is the warranty itself. That should be copied and kept with your other important papers. If the manufacturer asks you to send documents, always send a copy, and don't send your original documents.

A warranty is a contract. A contract is an agreement between two parties (e.g., you and the car manufacturer), made for valuable consideration (e.g., car manufacturer gets money and you get a warranty). That means, in practical terms, you and the manufacturer or dealer have a promise that the vehicle is in a certain condition when purchased, and this condition will be maintained through repair or replacement over a certain period of time.

Status of Manufacturer Is Key

Over the past decade, some consumers have been unpleasantly surprised at the impact on them when a company goes out of business. For example, consumers who had purchased low-cost auto insurance found themselves without insurance coverage when insurances companies became insolvent. In many states, critical areas such as banking and insurance have consumer protection mechanisms to cushion the fall, such as the FDIC and Insurance Guaranty Funds.

Unfortunately, no security blanket exists to protect consumers from the insolvency of a car manufacturer or dealer. Whether car buyers have any protection for their warranties or parts will depend on the terms of any bankruptcy of manufacturers or dealerships. This includes whether these claims have been assigned to other entities. If so, then the manufacturer or dealer will likely send you a letter with the new contact for problems with warranties or parts. It's important to not automatically discard mail you receive from a car maker or dealership, as it might contain important information.

Other Legal Actions

Wading through the maze of paperwork and legalese can be a challenge. If you've run into a dead end trying to get warranty service or parts, or if you've heard that your local manufacturer will be closing, consider consulting with an attorney for help. The attorney will review your situation and may recommend legal action. In particular, if the manufacturer or dealer files for bankruptcy protection, claims must be filed within a limited period of time. A bankruptcy attorney can help you understand your rights and any time constraints for making claims.

Also, an attorney can help determine whether there are other means of legal action available. Nearly every state has lemon laws which protect you against unsavory car sales practices. States also usually have a consumer fraud statute which spells out exactly what sales practices are prohibited, and what legal remedies or solutions can be sought for such violations.

Questions for Your Attorney

  • Are there ever class action lawsuits against a manufacturer, dealership or insurance company over vehicle warranties or extended warranty coverage? Or are such claims usually handled individually?
  • How do new car warranties and extended warranty contracts work when a dealership or manufacturer goes out of business? Does it even matter if I'm now covered by an extended warranty, which is backed by an insurance company?
  • Can and will auto insurance carriers charge more if a vehicle's manufacturer has gone out of business?

Tagged as: Consumer Law, Vehicle Finance & Repair, vehicle warranty, vehicle finance repair lawyer