Will Car Owners Be Abandoned, Too?

While you won't see an ad in the used car section of the classifieds, several lines of vehicles are up for sale as the Big Three auto makers appeal for yet another bailout from Congress.

General Motors (GM) and Chrysler submitted recovery plans to the U.S. Treasury on Tuesday, requesting more funds and detailing how they plan to cut costs. Chrysler's plan is to trim production capacity by 100,000 vehicles while GM’s proposal includes an even more radical step. It's putting three of its eight brands on the block: Hummer, Saab and Saturn. (GM says if there are no offers to buy its brands, it will phase out Hummer this year and then Saturn in 2011. It has not revealed details of Saab’s fate.)

“This is pretty radical surgery,” says Jack Nerad, executive editorial director for Kelley Blue Book. “A lot of money goes into establishing a brand, so this decision is going to have a lot of teeth gnashing.”

Of course, all of these moves will take time. The most likely buyers would be foreign auto makers who will want to conduct a great deal of due diligence before investing in the flagging U.S. auto market, says Lincoln Merrihew, senior vice president of automotive for market researcher TNS North America. The gas-guzzling lineup at Hummer, for example, will be a tough sell given the wild swings in fuel prices over the past year and a growing push toward fuel efficiency.

While it may be a tough sell, 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. But GM won't be the only one to pay the price. Those who own Saabs, Saturns or Hummers could face some pretty dire consequences if no one buys the brands. Here's what to expect.

The warranty is a legal contract. Therefore, should your car's brand get bought by another auto maker, that company must honor the warranty, says Tom Libby, senior director of industry analysis for J.D. Power and Associates. Shoppers who buy after a brand changes hands may see different terms, but it’s unlikely that any major changes would come through immediately.

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.

While auto makers will 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.

An orphaned car brand won’t fetch as much on the secondary market, says James Brock, a professor of marketing at the Miami University in Oxford, Ohio. Individual buyers and used-car dealerships are just less willing to buy a car that's more difficult to repair or resell down the line.

Oldsmobile resale values, for example, lost about 6% when the brand phased out, says Nerad. However, once your used car is more than five years old, the difference is negligible. At that point, the car’s condition and maintenance far outweighs brand value, he says.

“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.

When an auto maker buys a new brand they tend to focus on streamlining the operations before trying to adjust the cars’ looks, operation or price, says Merrihew. In March, for example, Ford sold Jaguar and Land Rover to Indian auto maker Tata Motors (TTM). “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.”

“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.