With the economy continuing to slump and near-constant bad news about jobs and unemployment, it’s no wonder that many companies are shutting their doors. Just before President Obama took office, the Bush administration authorized almost $20 billion in bailout money for GM and Chrysler. Although Ford continues to insist it does not yet need federal assistance, auto parts suppliers recently announced that they need around $15 billion to avoid bankruptcy. What happens to your investment in your car if the company that made it goes bankrupt?
What Bankruptcy Means to You
Under a Chapter 7 bankruptcy, a company is allowed to continue operating while trying to reorganize its business so it can pay off most of its debt. The main creditors for the company agree to take less money than they are immediately owed in exchange for input into how the company reorganizes to become profitable. Under this scenario, not much might change for consumers, at least initially, since the company is trying to continue operations.
However, there are a few potential problems with a car company declaring Chapter 7 bankruptcy. First, there’s no guarantee that it won’t have to file for Chapter 11 in the future. Circuit City filed for Chapter 7 bankruptcy last year and announced massive store closings and layoffs in an attempt to preserve a few stores and its online business. On January 16th, the company was forced to file Chapter 11 bankruptcy and end operations completely. When a company announces it’s having serious financial problems, consumer confidence falters and sales drop. Companies that sell consumable or disposable goods don’t share the same lack of trust as makers of so-called durable goods, because their products are only used once. If the company goes out of business, the products are not affected. On the other hand, if a car company goes out of business, the cars will be on the road for many years, but without a company to stand behind them.
Your Car’s Resale Value May Plummet
It’s been a long time since a carmaker went out of business, so it’s hard to predict what would happen to the resale value of a used car or the price of a new car from a bankrupt company. However, most analysts agree that bankruptcy would almost certainly lower the value substantially. If a car company is forced to sell its assets to another company, the new owner may decide to revive the brand by shifting away from the cars it used to make. If that happens, prices for these cars will inevitably plunge, which is bad if you just bought one—but good if you’re in the market for a bargain and don’t mind a little uncertainty. From an insurance standpoint, your Comprehensive and Collision rates are partially based on vehicle replacement costs, so you might find your rates dropping in the future.
Honoring the Car Warranty
Although nothing is certain in bankruptcy proceedings, consumer protection is usually the top priority. No official federal organization for warranty protection exists, but the federal government could step in and promise to honor the warranties of an automaker in bankruptcy. That move would partially ease the fears of consumers and possibly spur sales enough to help the company recover, at least in the short term.
Congress is already debating a proposal that aims to encourage drivers to trade in older, less-efficient vehicles by loaning or offering a tax deduction for a new, fuel-efficient car. Proponents of the bill say that it has the dual benefit of boosting sales and helping the environment, while its detractors claim it won’t have enough of an impact to change anything. It’s clear, however, that the government will likely end up either loaning money to the car companies or paying for their warranties. Until this gets resolved, check your warranty (and extended warranties if you purchased one) so that you’ll know how long your coverage extends.
Getting Replacement Parts
Will you still be able to get replacement parts to repair your car if your automaker goes out of business? It’s possible that the collapse of a major car company could trigger a tidal wave of failures in related industries such as auto parts. The suppliers are already in trouble, and a sudden disruption to their sales could be enough to send many over the edge. Even so, if there’s enough of a demand for replacement parts, other suppliers should be able to fill the void. There may be a short period of longer wait times for repairs and parts, but it probably wouldn’t be permanent.
If your car insurance company guarantees the use of Original Equipment Manufacturer (OEM) parts for repairs, what would happen if these parts weren’t available? In most cases, the insurance company would use the best quality parts available and guarantee the repair for the life of the car. But, most body shops and insurance companies rely on non-OEM parts, when their quality is said to be of like kind and quality. And, salvage yards still provide a great hunting ground for used parts that can be re-furbished. So, aside from the impact to the economy and the affected workers, a car company going bankrupt would probably not be a catastrophe for its customers.
What do you think about the possibility of American car companies going bankrupt? Would you buy a car from a company that might go out of business? Let us know, and we’ll post the best responses later!
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Filed under insurance by on Jan 11th, 2011. Comment. 
Price is the first thing most shoppers consider when comparing car insurance quotes. After all, we all want a good deal, right?
Of course. But don’t make the mistake of buying solely based on price. Even if you pay a few dollars more, you’ll get a better deal – and be a whole lot happier with your purchase – if you compare these five factors first.
1. Companies: Research the carriers you are considering. Companies like A.M. Best and Forrester’s rate insurance companies on their financial strength, customer service and reliability. J.D. Power and Consumer Reports feature comments and reviews on their websites about drivers’ real world experiences with various insurance companies. Pay particular attention to comments about claims service.
2. Customer Service: Check out the availability of both customer and claims service. Is it open 24/7 or only during certain hours? Determine if the company offers claims representatives in your area or if most claims are conducted over the phone. Then decide what’s right for you. After all, if you have a claim, you want to feel comfortable about the process.
3. Payment Options: Investigate what options are available for paying for your policy. Some companies offer monthly or annual payments and some offer a discount for paying in full at the start of your policy. It’s also important to know what forms of payment they accept such as credit or debit card, electronic check or ACH. Be sure to ask if there’s a discount for using one form of payment versus another.
4. Coverage: Make sure when you compare quotes, you are comparing apples to apples and that each policy you consider affords you the same amount of coverage. Pay particular attention to towing and rental car coverage. Prices and privileges really vary here.
5. Discounts: If you qualify for a discount – AAA, good student, epayment – check to see that each carrier you compare quotes from offers you the same discount. Even a few dollars can make a big difference over the life of a policy.
Remember, a bargain isn’t a bargain if you wind up with the wrong company. Before you buy, make sure the company you choose will provide the service and value you expect.
Now that you know what to look for when you compare car insurance quotes, let’s make car insurance companies compete for your business. In less than 10 minutes, insurance.com can deliver up to four comparison quotes from top-rated insurance companies – saving you time and maybe a lot of money!
Filed under insurance by on Jan 6th, 2011. Comment.
Which insurance products should I consider if getting a divorce?
Going through a divorce can be stressful and disruptive. Make sure you take the time to ensure that you and your loved ones are protected by reviewing your current insurance coverages, and how they’ll change after the divorce.
Auto insurance changes
Car insurance is required to be purchased by the owner of a car—and ownership is typically settled by agreement in a divorce. You may need to re-establish your own insurance if your spouse takes you off the policy that person now owns solely. It’s your responsibility to make sure you’ve got insurance, and to prevent a potentially expensive lapse in coverage. Unfortunately, you may no longer qualify for multiple car discounts and reduced rates for married couples, and you may no longer get a discount from bundling your car and home insurance if you no longer live in the same place.
There are several things you can do to manage your auto insurance costs. First, shop around to make sure you get the best rates. Different car insurance companies rate in different ways, and your current insurance company may not offer you a similar rate as before now that you’re single.
Second, determine whether you need the same level of coverage as you did when you were married. It’s likely that the coverage amounts you chose when married were based on joint assets. You may have different assets now and therefore different coverage needs.
Life insurance
First, determine the owners of any existing life insurance policies, as it’s the owner (and not the insured or the beneficiaries) that determines any changes that takes place on the policy. If beneficiaries need to be changed, the owner has to make those changes. Make sure to review who the beneficiaries are, and whether or not they need to be changed. This may be something that’s defined by a separation agreement or final divorce papers.
Next, your coverage amount will need to be reviewed. Consider why any life insurance was purchased before the divorce, and decide whether or not those circumstances still apply. If the policy was bought to cover children through college, for example, it’s likely that the same amount of coverage will be required. Life insurance may also have to cover alimony and child support payments after a death.
What about health insurance?
Were you covered under your spouse’s employer’s plan? Was your spouse on your employer’s plan? Make sure that you and your children, if any, are covered. You want to keep yourself and your children healthy and provide for the best medical care possible, so health insurance is an absolute necessity. It can protect you from financial ruin if a serious injury or illness occurs. Make sure you understand how your policy works and who is covered—and when coverage ends in the event of a divorce.
If you do need to purchase your own coverage after a divorce, it’s important to understand the options for traditinal plans and lower-cost catastrophic health insurance plans, which are set up with high deductibles and often coupled with a Health Savings Account. If you’re healthy and do not need to include others on your policy, a high deductible plan may help you save money, while offering coverage for a serious event.
Filed under insurance by on Jan 3rd, 2011. Comment.