TORONTO - U.S. President Barack Obama's announcement that the U.S. government will immediately begin backing warranties on new cars won't do much to stimulate sales, but the Canadian government should still follow his lead, industry players say.
George Iny, president of the Automobile Protection Association, said government-backed warranties are a good "interim measure" to boost consumer confidence, but raises as many questions as it answers in some ways.
"You don't only need a government-backed warranty for the car, but the question is, where will you get the car repaired and will you be able to get parts and service," Iny asked if the company that made the car no longer exists.
Iny also questioned whether the government will back extended warranties purchased by consumers, or just basic warranties.
The U.S. government's announcement that it will start backing vehicle warranties came Monday as the Obama administration refused further bailout loans for General Motors and Chrysler, saying more concessions were needed from unions, creditors and others before restructuring plans could be approved.
The government also forced the departure of Rick Wagoner as CEO of General Motors over the weekend, and Obama gave GM 60 days to come up with a new plan. Chrysler has 30 days to cement an alliance with Fiat.
In Canada, the federal and Ontario governments joined the United States in demanding further concessions, but agreed to extend $4 billion in stop-gap funding for the companies' Canadian arms.
Federal Industry Minister Tony Clement said the government had no plans to immediately begin backing vehicle warranties, but he would consider the measure.
Iny said government-backed warranties may help consumers feel more comfortable buying a General Motors or Chrysler product immediately rather than waiting until the companies have finished restructuring.
"It may prevent some attrition of sales... but as long as the uncertainty exists, I still think there are more fundamental issues than (warranties)," he said.
Mark Nantais, president of the Canadian Vehicle Manufacturers' Association, said government-backed warranties are "all about calming consumers' nerves and perceptions," but agreed they'll do little to stimulate sales.
Government-backed warranties need to be part of a broader package aimed at stimulating sales, said Michael Hatch, chief economist for the Canadian Automobile Dealers Association.
"A lot of these (bailout) measures could potentially be for naught if people just aren't going to go back into showrooms," Hatch said.
"People are worried that their warranties aren't going to be honoured and that keeps people away. It's not a magic bullet that's going to solve all the industry's problems overnight... but it is something that could help."
But both Nantais and Hatch said a robust vehicle scrappage program such as that in Germany, where consumers are given 2,500 euros or more than C$4,000 to trade in their old cars, will do far more to stimulate sales than government-backed warranties.
"If the government came in with that, compared to a lot of the other measures that have been brought in on the manufacturing side, the price tag would not be all that astronomical," Hatch said.
The Canadian government has its own vehicle scrappage program that offers consumers $300 or other incentives such as free transit passes for getting rid of older vehicles, but Hatch called this program "worse than nothing" because it simply rewards consumers who were going to get rid of their old cars anyway.
"It still costs money but it doesn't do anything," he said.
Governments in both Canada and the U.S. have taken other steps to reassure consumers and boost car sales, which have slumped dramatically amid a weakening global economy and tight credit markets.
In the United States, economic stimulus legislation allows consumers to deduct the cost of any sales and excise taxes from any new domestic car purchase, while the federal government in Canada will buy up to $12 billion in securities backed in part by loans and leases on vehicles.
