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Thread: The pros and cons of going broke...

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    Vulture of The Western World Eric's Avatar
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    The pros and cons of going broke...

    GM and Chrysler are in the position of country folks who have suffered a sudden hardship and now everything's being auctioned off this coming Saturday to try to raise some cash.

    Bad for them - maybe good for you. But not necessarily. Let's look at some Pros and Cons of the slow-motion disintegration of GM and Chrysler:

    * Pro: Some really good deals are available -

    Dealers given their walking papers are desperate to unload inventory - which they, like you probably will, took out a loan to acquire. It's like a going out of business sale at a closing retailer - in fact, that's exactly what it is. You - the buyer - are in the catbird seat for once and can expect heavy discounts. Some dealers are selling inventory at 30-40 percent off MSRP sticker price as they try to recoup at least a few nickels and dimes on the dollars they invested. Sucks for them. Good for you.

    * Con: You may get stuck with a lemon -

    Part of the pending acquisition of what's left of Chrysler Corp. by Fiat includes a provision in the legalese that "new Chrysler" will not be financially responsible for liability problems that may crop up in the future involving "old Chrysler" models built prior to the acquisition. This is worrisome on two levels, the more subtle one being that for the past couple of years Chrysler has been struggling to get out of the red and in the process, may have cut quality in places not yet obvious - but which may become obvious a few years down the road. If you buy one of these cars, you could get left holding the bag. Buying a second party extended warranty may be a worthy use of the money you saved "up front."

    * Pro: Service replacement parts (and service) will not be a problem -

    Even if Chrysler or GM were to go completely down the drain, parts to fix and maintain Chrysler and GM vehicles will almost certainly be available for years to come. For one, the existing inventory of service replacement parts is vast. For two, service is profitable - and even if Chrysler or GM, the companies, no longer exist, it's a virtual sure bet that aftermarket companies will acquire the rights to make parts and continue to do so for decades to come. Independent (non-dealer) shops will still do the work, too. Just as they do today. So, no worries on that score.

    * Con: Depreciation curves will be steep -

    Whatever you paid for your GM or Chrysler vehicle - even if you got a really good deal - may not seem so sweet come resale/trade-in time. Bankruptcy carries with it the taint of failure - and that stomps on the resale values of the bankrupted brand's vehicles. Related: You will probably not be able to lease a GM or Chrysler vehicle under any circumstances because of the expected low resale value, which makes leases not worth doing (for the leasing company) or prohibitively expensive (for the person looking to buy the lease). On the upside, if you are the sort of person who keeps a new car until the wheels fall off, 10-15 years down the road - none of this matters to you at all.

    * Pro: Your property taxes should be lower -

    Many localities assess taxes on personal property, including motor vehicles. These taxes are based on the current retail value of the property. In the case of motor vehicles, the county/state government goes by used car value guides to determine how much a given vehicle is worth, and then sends you a bill based on that. If you buy a GM or Chrysler vehicle whose retail value has plummeted right along with the value of GM stocks, your annual property tax bill should be considerably less than it would be if you bought an otherwise similar but "blue chip" make/model of car that holds its value better. Over a 5-10 year period, the savings could total hundreds, even thousands of dollars.

    * Con: Body damage could be an issue down the road -

    While it's likely that basic items such as oil and air filters and other service parts necessary to keep the running stuff running will be around for many years to come, body and trim pieces may become harder to find - and a lot more expensive as the years tick past. Consider the "case in point" of Stirling. Remember Stirling? It was a failed attempt to sell a British-Japanese luxury car in the 1980s. While the cars are still around, it is virtually impossible to find exterior panels and interior trim parts. The same fate may befall owners of defunct Chrysler and GM-branded cars five to ten years after liquidation (if it gets to that point).

    Bottom Line: Bankruptcy opens up some opportunities for buyers that are almost unprecedented. But there are risks, too - and it's important to consider the whole equation before deciding whether "the math" makes sense for you.
    Last edited by Eric; 06-09-2009 at 09:29 AM.

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