Thursday, July 26, 2007

Lifetime Warranty Offered By Chrysler

Today Chrysler has begun offering a lifetime powertrain warranty to its customers. The warranty is valid for the original owner of the vehicle only, provided the car is inspected at least every 5 years by a certified dealer.

Offering such a warranty should increase potential customers' willingness to consider Chrysler vehicles when making a purchase, which could lead to increased sales. But I'm not convinced that many incremental buyers will be swayed by just the warranty itself. How many people drive their cars to the point they're having powertrain failures? If you're not planning on owning your car that long, this warranty isn't a factor. Instead, you'd be comparing Chrysler's 3 year / 36,000 mile warranty with the warranties of competing manufacturers. (And 3/36K doesn't stand up very well nowadays.)

Now, if someone plans to buy a car and own it for 30 years, then maybe this warranty sways them to buy a Chrysler. But they are the kinds of customers that would be most likely to avail of the lifetime warranty, so they might not be the customers Chrysler would necessarily want (or find profitable).

I think it'll be a long time--i.e., until we see how many warranty claims they have to handle--before we know how this all works out, even if Chrysler gets a sales bump short term.

For Cerberus, though, this looks like a good move. If they want to cash out of Chrysler in 5 years or so, this move probably doesn't hurt them a bit. They might get a sales bump from the lifetime warranty offer in the next 5 years, but any expenses associated with honoring lifetime warranties probably won't show up for years thereafter.

As you might expect, everyone is covering this story today, and many have interesting comments posted as well. Here are the links:

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