The headline in USA Today said it all: “GM SLASHES ITS WARRANTIES.”
This announcement—-hot on the heels of another by GM highlighting that the company made $4.25 billion last year before taxes—makes it sound as if the company is just being greedy.
Eric Lyman, TrueCar analyst noted that “long-term warranties can convey confidence in quality and durability that improve brand perception and contribute to long-term growth in sales, resale value and new-car transaction prices.”
In other words, GM’s move will likely produce short-term earnings results, but in the long-term its brand will take a major hit in the marketplace.
In essence the company is now saying it does not produce quality vehicles and will no longer stand behind them. It is a horrible message to deliver to consumers.
This is a company that has suffered through numerous recalls in the past year that has damaged its quality reputation. However, rather than deal with those issues, the company has decided to reduce its commitment to quality.
A few years ago South Korea’s Hyundai and Kia were trying to break into the U.S. market, but the duo had major image problems. Consumers simply did not believe the the brands’ quality was up to standard.
What did the company do? It increased its warranty to 10 years/100,000 miles. Consumers immediately changed their views about the vehicles’ quality and sales skyrocketed.
The company even offered a guaranteed resale program and went so far as to agree to buy back vehicles if purchasers lost their jobs during the recession. It was a wonderful message and it has paid off.
GM’s decision to reduce its warranty coverage will now open the door for competitors to take full advantage of the situation.
This is the kind of decision that will likely produce short-term cost-savings benefits to General Motors. In the long-term its brand will take a major hit.






