DETROIT – In a show of confidence in the improving quality of its vehicles – and in a strategic reversal of sorts from its stand of a few short years ago, General Motors Corp. says it will extend powertrain warranties on all ’07 models to five years, 100,000 miles (160,934 km).
Chairman and CEO Rick Wagoner says GM is “putting our money where our mouth is,” with the new coverage, made possible by sustained quality improvements that have lowered total warranty costs 40% over the last five years.
“GM’s momentum in quality is not a short-term fluke,” Wagoner says in announcing the new warranty. “It’s the result of a concerted, long-term effort, intensely focused on improving all aspects of vehicle quality.”
The expanded warranties cover every nameplate across all GM brands sold in the U.S. and Canada and do not carry deductibles. The transferable coverage also applies retroactively to ’07 vehicles sold in 2006 and similarly extends roadside assistance.
The new guarantees do not alter the standard 3-year/36,000-mile (57,935-km) bumper-to-bumper warranty GM provides on Chevrolet, GMC, Pontiac and Saturn cars and trucks. Buicks, Cadillacs, Hummers and Saabs carry 4-year/50,000-mile (80,467-km) bumper-to-bumper coverage.
Powertrain warranties generally cover mechanical components such as the engine and transmission.
The new service extension marks a change in course for GM from just three years ago, when rivals Ford Motor Co. and Chrysler Group launched extended warranties. At the time GM declined to follow suit, saying buyers preferred cash rebates to longer warranties, citing its experience when it offered buyers such a choice on its minivans.
Wagoner now says consumer feedback indicates engine and transmission concerns are top of mind for buyers because of the potential high repair costs.
“As we talked to consumers, that is the biggest issue on people’s minds, those are the most extensive problems people encounter,” he says in explaining why GM focused on the powertrain area rather than extending its bumper-to-bumper warranties.
Wagoner says the $9 billion cuts in North American structural costs over the next year will help fund the warranty program.
GM cars and trucks have moved up in several consumer satisfaction and quality studies. But Wagoner notes the new powertrain guarantees go toward addressing still prevalent customer perceptions the Japanese build higher-quality vehicles.
“You’re accurate in saying some people don’t put us on the consideration list because of historical problems or perceptions regarding quality, so this is a way to address that,” Wagoner says. “But frankly this has been a studied process; we’ve looked at it pretty carefully. We looked at trends in our powertrain warranty and feel like it’s the right time to make this move.”
Wagoner also sidesteps questions regarding the expected costs of the program and whether it will be more expensive than recent incentive efforts, such as GM’s popular employee pricing discounts of a year ago.
“This isn’t cheap, but we think it’s going to be more effective for where we are today,” he says. “It’s the right thing to do, and we think it’s manageable for the cost commitments we’ve laid out.”
The warranty extension is another step in the overhaul of GM’s pricing strategy, which launched in second-half 2005. The policy relies less on incentives and more on sticker prices that are closer to actual transaction prices. GM says it reduced its incentives by $946 per unit in first-half 2006.
“It was sequential to the whole shift in our marketing strategy,” Mark LaNeve, GM North America vice president-sales, service and marketing, tells Ward’s. “This slots right in as a continual barrage of enhancing the value proposition to the customer.”
LaNeve hopes to see a boost in conquest sales as a result of the warranty extensions and believes the offers will improve residual values for GM vehicles.
“It’s a coverage package we believe takes all the risk off the customer,” he says. “The real quality gap closed a long time ago, and this validates it.”
The GM incentive ups the ante on Ford, which in July extended powertrain warranties on most ’07 Ford and Mercury vehicles to five years or 60,000 miles (96,558 km), whichever comes first. Lincoln powertrain warranties run six years or 70,000 miles (112,651 km).
Previously, Ford powertrain warranties covered three years/36,000 miles (57,935 km) on Ford and Mercury vehicles and four years/50,000 miles (80,465 km) on Lincolns.
Chrysler currently offers a 3-year/36,000-mile bumper-to-bumper and powertrain warranty. It discontinued the 7-year/70,000-mile (112,651-km) powertrain warranty at the start of the ’06 model year.
In the most recent J.D. Power & Associates 2006 Vehicle Dependability study, Lexus, Toyota and Honda models dominated the rankings, although Buick, Cadillac, Chevrolet and GMC each topped one segment.
Among nameplates, Buick and Cadillac ranked No.3 and No.4, respectively, in terms of fewest problems per 100 vehicles. But scoring below the industry average were Chevrolet, GMC, Hummer, Pontiac and Saturn, which nose-dived 16 places with problems per 100 vehicles increasing from 240 last year to 289 in 2006.
In the most recent University of Michigan American Consumer Satisfaction Index (ACSI), a quarterly economic indicator that monitors the customer-satisfaction of product quality and services, Buick ranks second and is the only American nameplate in the top five, which also includes Honda, Lexus and BMW.
However, the favorable rankings of U.S. auto makers’ luxury nameplates highlighted the fact that only their high-end brands compete on the same level as the majority of Asian and European marques, U of M says.
Still, some analysts see GM’s latest move as a positive step.
“General Motors has been doing a really terrific job in improving the quality of their vehicles – they’re where the world class Toyota was about three or four years ago,” says Jack West, a project manager for the ACSI. “They’re closing the gap. Not only are they internally confident that the management strategies they’ve put in place are working, but they’re backing it.”