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GM Strengthens Warranty

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To upgrade the image of General Motors vehicles, the giant automaker has introduced a standard five-year/100,000-mile powertrain warranty and roadside service contracts on every 2007 passenger car and light truck it sells. The program comes on the heels of increasing sales for GM, which saw sales rise more than 3 percent from 2005.

Bumper-to-bumper warranties will remain at three years and 36,000 miles on most GM products. The new warranty has no deductible, is fully transferable and also includes courtesy transportation for the same length as the powertrain warranty. Buick, Cadillac, Hummer and Saab will still have four-year and 50,000-mile coverage. The new program started September 6 and will apply retroactively to all 2007 vehicles already sold.

"We've been telling everyone how strong GM's cars and trucks are in terms of value, design, quality and durability," said Chairman and CEO Rick Wagoner at a press conference in Detroit. "Now we're going to back it up."

The move promises to put pressure on the other domestic manufacturers, Ford Motor Co. and DaimlerChrysler AG, to match the program, said Jesse Toprak, executive director of industry analysis for Edmunds.com. "[Ford and Chrysler] will probably have to match it at some point. They won't be able to do it immediately because it takes time to initiate these kinds of programs," Toprak pointed out. In July of this year, Ford extended powertrain warranty coverage to five years/60,000 miles on all 2007 Ford and Mercury models, though the Focus compact car alone carries five-year/100,000-mile coverage (Lincolns have a six-year/70,000-mile drivetrain warranty). Chrysler backs its vehicles with only a three-year/36,000-mile warranty.

In the past, other automakers such as Kia and Hyundai have extended their basic warranties without seeing an immediate improvement in resale value. Instead, Toprak said, the strategy is a long-term attempt by GM to improve the standing of its brands and boost resale values over many years.

Michael Jackson, GM North America vice president marketing and advertising, was at a Los Angeles press conference while Wagoner made the formal announcement in Detroit. He previewed the ad campaign created by Deutsch Inc. that will launch it with the theme "Elevate." In a series of slick TV ads, released to dovetail with the kickoff of the 2006 NFL season, GM cars rise out of gridlocked city streets and fly past famous landmarks in Los Angeles, Miami, New York City and San Francisco. The choice of these locations in so-called "blue" states was a conscious decision to promote GM in areas traditionally strong for foreign car sales.

While incentives can make sales spike, Jackson said the new warranty was designed to increase sales for the long term. "This isn't just about the warranty," he said. "But [it's] about the reconception of the brand."

Toprak said that when Hyundai first went to a 100,000-mile program, it was at a time when the company was having trouble getting banks to offer car loans on its products because they had no resale value. However, Toprak said, "a warranty helps improve that over time. It gives people confidence that if something major went wrong, it would be covered."

Toprak said he didn't expect Korean, Japanese or other imports to be immediately impacted by the move. But across town from GM, Ford and Chrysler will likely have to act fast to remain competitive in the short term.

"In theory, people looking for Kias might look at a Chevy with a 100,000-mile warranty, but hard to say what the reality will be," he said. "But the domestics pull their customers from a similar group of consumers and this will be a competitive factor in that market."

Wagoner said the warranty increase was the result of a decade-long effort to improve reliability ratings of GM vehicles. Significantly, warranty repairs at dealers have decreased 40 percent during the past five years. Also, two GM brands, Buick and Cadillac, place in the top five in the J.D. Power and Associates Vehicle Dependability Study.

While import-brand cars appear to be more prestigious on the West Coast and the Northeast, GM officials pointed out that nationally, one in four cars on the road are made by the auto giant. Founded in 1908, GM employs about 327,000 people around the world and builds cars and trucks in 33 countries. In 2005, 9.2 million GM cars were sold globally.

It remains to be seen how much the warranty increase will help GM sales. Jackson said that the planned ad campaign (which also includes newspaper, billboard, Internet and "viral" spots) will be the most intense campaign ever mounted by GM. This puts the pressure squarely on Ford and Chrysler.

But beneath it all, GM must have supreme faith in its ability to reduce quality issues in the next few years in order to afford this program. It's either a sign that a solid turnaround is afoot...or a sign that GM has simply put its last stack of chips on the table.

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