Consumers drive on the bumpy bankruptcy road

Despite the media onslaught, the average car buyer is relatively removed from the financial machinations behind the Chrysler and GM bankruptcies, though the process does open up new considerations and risks for shoppers. We have received many reader and media queries on the developing auto crisis, and continue to develop our advice and insights.

Bankruptcy hits home with consumers

The most immediate impact is that both corporations have announced plans to reduce the number of franchised dealers. With the remaining dealer network, sales will continue as these companies restructure and resurrect themselves as "new" businesses.

With the automotive giants, we're driving into uncharted territory, though recent high-profile Chapter 11 filings have involved airlines and retailers and should give hope. Besides some store closings or reduced flight available from certain airlines, these bankruptcies had little direct effect on the average consumer. After all, you can choose to fly with another carrier and shop another big-box store without much imposition. And in some cases, the businesses continued to operate during a restructuring.

Cars are admittedly different. They are a major investment and a product that is depended upon to operate safely and reliably for many years. To purchase a Chrysler or GM product is to invest, and daresay, take a chance, on their future.

The government is backing warranties during the restructuring period, providing comfort to those looking to buy from an American automaker, but what happens when those warranties end? Likewise, what about the suppliers who provide essential components for not just building the cars, but servicing and repairing? Will my dealer survive the economic recession? And is the dealer on GM's unpublished list of those whose franchise license won't be renewed? These are valid questions for buyers and current owners, and ultimately they point toward increased consumer risks to be considered by car buyers. (Our auto crisis hub provides guidance on these and other related issues.)

When a company files for Chapter 11 bankruptcy it is a double-edged sword. They can emerge from the process with a clean financial slate, but they have to build back their business. As consumers want to help Chrysler and GM and keep them in business, save jobs, help the economy and the American auto industry, they also have to consider protection for their own transportation investment.

Through this period of turmoil, there are deep discounts that may be tempting. As always, Consumer Reports recommends you do your researching, focusing on cars that perform well in our tests, have average or better predicted reliability, and proven safety performance. Then, look to the deals and consider the factors mentioned here if you are drawn to a Chrysler or GM vehicle.

—Liza Barth