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How owners of GM, Chrysler vehicles could be affected

With car dealerships closing, drivers could run into some contractual and practical problems. Here are some obstacles they might face.

May 15, 2009|Martin Zimmerman

With thousands of Chrysler and General Motors Corp. dealerships closing, customers could be confronted with problems over warranty coverage, trade-ins or other matters.

Both automakers pledge to make the contraction as painless as possible, but that doesn't mean there won't be problems.

"When all of these relationships are disrupted, you can't help but have some elements of chaos, and some practical problems occur," said Aaron H. Jacoby, a Los Angeles lawyer who represents car dealers.

Here are some issues GM and Chrysler customers may face:

Manufacturer warranties: These are the warranties that are included in the price of a vehicle and cover specified repairs for a specific period of time -- three years or 36,000 miles, for instance. They're backed by the manufacturer, not the dealer, and are good at any of the manufacturer-licensed dealers.

GM and Chrysler have both pledged to stand behind their warranties.

But consumers still could face a long drive to the nearest authorized dealer. And customers who have a long-standing relationship with a particular customer service manager may find themselves at the mercy of one who is less attuned to their interests, notes Philip Reed, senior consumer advice editor at auto website

Warranty complaints should be directed to the manufacturer or the state New Motor Vehicle Board.

Extended service agreements: These go by many names, often vehicle service contracts or extended warranties, but the bottom line is generally the same: For an additional charge, the contract pays if certain things go wrong with the vehicle for a set period of time -- usually after the manufacturer's warranty runs out.

These contracts typically are backed by a third party -- known as a vehicle service contract provider -- or by the manufacturer. If backed by Chrysler, the automaker said, its other dealers will honor the contract. If backed by a contract provider, Chrysler said, the vehicle owner should check the contract for information on where to go for repairs.

California law requires that such contracts include an insurance policy. If problems arise over the contract, car owners should contact the insurer. Written complaints also can be sent to the state Department of Insurance.

Unpaid liens on trade-ins: When a car buyer trades in a vehicle with an outstanding loan balance, the dealer is supposed to pay off the loan as part of the transaction. But as dealerships have closed during the recent collapse in auto sales, many of them didn't pay off the loans.

In these cases, consumers are still liable for the original loan and can end up with two monthly payments -- one on the car just bought and a second on the car traded in. And if the trade-in vehicle is resold before the loan is paid off, the new owner of the used car won't be able to get a title from the state -- and, legally, won't be able to drive the vehicle.

A 2007 state law authorized a $5-million fund to reimburse victims of unpaid car liens, as well as license and registration fees paid but never forwarded to the state.

Most franchised new-car dealers that go out of business don't have this problem. But the Consumer Motor Vehicle Recovery Corp., the nonprofit agency that oversees the fund, is bracing for an influx of claims as dozens of Chrysler and GM dealerships close in California.

The fund just got off the ground this year, and Ron Reiter and his fellow board members are scrambling to hire staff and administrators. That may create delays in clearing claims, Reiter said, and may also cause payments to be held up if the fund is depleted and has to be replenished. It's funded by assessments on car dealers.

The agency doesn't have a website yet, but claims can be filed by filling out and mailing a form on the Department of Motor Vehicles' website.

Vehicle repair history: Failing to perform recommended service can invalidate a warranty -- and lacking the records to prove the services were performed can have the same result.

Maintenance records should be transferred when a dealership closes, but don't count on it. Car owners who haven't kept their own vehicle repair records should get copies while their dealer's doors are still open, said Pat Goss of Carchex, a provider of consumer automotive services.

"Paperwork can easily fall through the cracks," Goss said. "Even one item missing or one page corrupted could be serious trouble in trying to prove a warranty claim in the future."

Financing: Financing arrangements should not be affected by the dealer closings.

Sales perks: If a dealer promised a special incentive -- such as a year's worth of free car washes -- and then closed its doors before fulfilling the bargain, other dealers aren't obligated to provide the service.

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