Buy a GM or Chrysler vehicle, and the warranty will backed by the full faith and credit of the U.S. government. Is that a good enough reason to buy domestic?
Probably not. With GM and Chrysler begging for billions in government aid to survive–and Ford (NYSE:F), which hasn't taken any bailout money, still hemorrhaging money–many car buyers don't want anything to do with the once-mighty American auto industry. Polls show that at least half of Americans oppose the auto bailout, which isn't surprising considering that Detroit's market share has dropped from 75 percent in the 1970s to less than 50 percent today. Millions of once-loyal domestic consumers feel burned by shoddy products and arrogant service.
Quality has improved since then, and Detroit has gotten the message that they need to improve service and offer more appealing cars. But many buyers remain unmoved. Here's the case against buying a domestic vehicle:
Quality is spotty. Sure, Ford and GM have made meaningful gains in quality and reliability, but their offerings are still hit or miss. In the U.S. News new-car rankings, for instance, the Chevy Malibu and Ford Fusion rank in the top 5 in their category. But there's neither a Ford nor Chevy that cracks the top 15 in affordable small cars. In Consumer Reports' reliability rankings, 7 of the 10 lowest nameplates are domestic, while all of the top 10 nameplates are foreign. As for Chrysler, the government's automotive task force highlighted "the inferior quality of its existing product portfolio" to help explain why Chrysler's prospects as a standalone automaker are weak. Who wants to gamble with quality–and pay a high price for guessing wrong?
There's nothing special about the cars. Okay, so a few rank as high as Toyotas (NYSE:TM), Hondas (NYSE:HMC), or other standard-setters. So what. There's intense competition throughout the car business, and there's virtually no category where GM, Ford or Chrysler offers a must-have vehicle that's markedly better than what other carmakers offer. So why take the chance with a domestic model when you're safer buying an import brand?
Government guarantees are unconvincing. The feds might be backing up GM and Chrysler warranties–but who wants to stand in line at the DMV to wait for a warranty repair? The government hasn't said exactly how it will honor warranties if GM or Chrysler goes out of business, except to say it will "identify an auto service provider to supply warranty services." Uh, no thanks. I'll just stick with the Toyota dealership down the street.
The Detroit 3 are environmental laggards. Chrysler still doesn't even offer a hybrid. GM spent nearly a decade scoffing at hybrids, until gas hit $4 a gallon and the Toyota Prius became a bestseller. Ford's a bit further ahead, but its Fusion and Escape hybrids are still a generation behind Toyota and Honda–and pricey compared to new hybrids like the Honda Insight and the third-generation Prius. While hawking their huge, gas-guzzling SUVs, all three automakers fell far behind on fun, economical small cars. And now, despite aggressive plans to catch up, even bold new vehicles like the Chevy Volt electric plug-in won't help Detroit reclaim environmental leadership.
Other cars are just as "American." The Ford Fusion and Chevy HHR are assembled in Mexico. The Buick Lacrosse, Chevy Impala and new Chevy Camaro–supposedly a quintessential American muscle car–are built in Canada. Meanwhile, the Honda Accord, Toyota Camry, Mazda 6 and a lot of other "foreign" cars are assembled in the United States. It's true that many GM, Ford and Chrysler products are still made in America, and that profits–when there are some–get repatriated to the country where the automaker is based. But every major foreign automaker now builds cars in the United States, or plans to, and it's Americans who hold those jobs. So many "foreign" automakers seem nearly as American as GM, Ford, or Chrysler. They're just not based in Detroit.
Disclosure: no positions