I think I just need to start covering my ears and closing my eyes anytime anything involving AIG is on the news. Yet again, they’ve managed to make me stabby. Unfortunately, their latest infraction is evidence that the very companies that brought down our economy STILL haven’t learned from their mistakes, and probably never will.

They’ll Pay Us Back – Someday
In a talk to employees, he said “When we get the fair value for those businesses, that’s when we’re going to sell them; it’s not going to be before.” And apparently, that’s when we, the taxpayers, will get our money back. He also reportedly said that he “had the luxury to say to the government, I’m not going to rush to do this. I’m appalled at how much pressure has been put on all of you to just sell it no matter what, because the Fed wants out, or the Treasury wants out. If they want out in a hurry, they shouldn’t have come in in the first place.”

Shouldn’t have come in in the first place. There’s a word for that type of comment, but it’s not appropriate on a family blog. I’ll be honest, I didn’t agree with the bailouts, but our government believed it was saving our economy from an even worse collapse than the one we experienced. Maybe it did save us. We can’t know for sure. Apparently this new CEO would have preferred that we just let AIG fail. Of course, if we’d done that he wouldn’t have a job, but his thinking didn’t go that far on the issue.

It’s Not Their Fault
And now we get to the part that nearly made my skull open and fire erupt from it. Do you know why AIG failed? Do you know why our economy was driven to the brink of collapse? You’re probably thinking, “because financial companies bought and sold imaginary products based on made-up numbers.” Yes, a reasonable person would blame the financial companies for taking bad risks and making poor decisions in the name of greed, however, the new AIG CEO has a different viewpoint. “It’s time the people in Congress stopped talking about you as the problem, because you’re the solution,” he said. “It’s not your fault, it’s their fault, it’s the regulators’ fault.”

It’s the regulators’ fault. Yes, to some extent that’s true. But he’s also abdicating corporate responsibility. If our government doesn’t explicitly ban a practice or explicitly regulate a practice, then corporations are just going to go hog wild. They’re not going to think about repercussions or responsibility. Money is money no matter how they get it or what the repercussions are.

At this point, I imagine AIG is a pack of unsupervised two-year-olds in a candy store. They’re just going to eat and eat and eat until they get sick because Mom isn’t there to make them stop, and then they’re going to blame Mom for not stopping them before they got sick.

I do realize this was an internal pep talk meant to motivate employees because AIG is losing staff, however, the CEO should have been wise enough to know that this speech would leak to the media. Everything leaks to the media, especially if it’s juicy.

I’m now sad to admit that I was once a shareholder in this company. Of course, that was 10 years ago when they were still honest and reliable. At this point, I don’t know that I would be willing to buy their stock again because I can’t trust them to be financially responsible. Comments like the above are only hurting their case.

As an aside, what do you want to bet that they have lobbyists in Washington actively campaigning against increased regulations, you know, because if the regulators are at fault for not regulating them, then the solution couldn’t possibly be to be regulate them. His comments are proof that we do need more regulation – effective regulation – because we can’t trust financial companies to do the right thing.

Sigh.

Much has been made this week by the Fed’s announcement that the first signs of economic recovery are appearing. The news has left many people wondering – if the economy is getting better, why doesn’t it seem like it? There’s a simple reason – economists have a different metric than the rest of us.

Official Definition of Recession and Its End
Officially, a recession is two quarters of negative GDP growth. A depression has no formal definition. When a recession ends, it’s because we have had positive GDP growth again. However, GDP growth doesn’t mean everyone is out of the woods. It simply means that the nation is starting to produce more and government spending is having some effect. If you consider this one factor, the recession is probably over. Unfortunately, the economy is about more than GDP.

The Rest Are Lagging Economic Indicators
If you look at the rest of the factors that go into the American economy during various recessions during our history, you’ll see that incomes, consumer spending, and especially unemployment continue to drag well after the recession officially ends. This is because the producers – our employers – squeeze current employees to boost the bottom line. Incomes and employment don’t start to rise until current employees have become as productive as they can and employers are forced to bring on more people to continue growing. When that happens, incomes can start to rise again and people will feel more secure buying things. That’s why they call these items lagging indicators. They confirm once and truly that the current crisis is over.

What about Housing?
This particular recession is tricky because it was caused by a housing bubble. Unlike the tech bubble, this is taking longer to pop and we will continue to see declines until employment improves. However, the housing problem is more severe in some areas than others, and some areas will stop seeing declines earlier than others. Some that haven’t yet declined will start to. There have also been a range of predictions about how much values will decline. No one can predict who’s right, but we can all say with some confidence that it will continue to be a problem for the next couple of years.

What It Means for You
Basically it means that there’s some light at the end of the tunnel. If you’re out of work, you might start getting calls for interviews again. If you have a job, this doesn’t mean you’re in the clear, especially if you work in a troubled industry or for a failing company. Unemployment often continues to rise after the recovery has started.

It’s also too soon to tell if the recovery will stick or if this is a “dead cat bounce” and it will start to decline again. Being a cautious person, I would invest carefully, but invest indeed. I would try to keep expenses low, but not live like a miser. And I would make sure that I’m still saving money every month. It never hurts to be prepared.

Welcome readers of US News’ Alpha Consumer blog! If you want to know more about our budgeting system, I’ve linked to a few budgeting posts about halfway down this post. If you’d like to learn more about how we paid off $40,000 in debt in one year, I detailed it last September.

This morning I heard a story from the Financial Times, by way of NPR, that banks earn $38.5 billion a year from overdraft protection fees. First, this is highway robbery, since most people don’t opt-in to these programs. Second, can avoid paying these fees. If you’ve paid an overdraft protection fee even once, it’s time to take action to avoid paying one again.

Disenroll from Overdraft Protection
About a decade ago, I had an overdraft protection plan. Back then, it meant they pulled money from my savings account to avoid overdrawing my checking account. There was no fee for this, because it was all my money. At some point, the bank stopped offering that and instead switched to using my credit card, but that required a minimum $100 advance, a $20 cash advance fee, and a higher interest rate with no grace period. I opted out of that.

If you’re not sure whether you have overdraft protection, call the number on the back of your ATM card and ask. If they say yes, ask to have it turned off. Yes, your debit card will be declined if you overdraw, but you’ll know right away. You won’t get hit with fee after fee after fee.

If you tend to get hit with overlimit fees on your credit card, ask to have that turned off, too.

Create a Budget and Use It
If you know how much money you have at any given time, you’re less likely to overdraw your account. If you only have $80 until your paycheck hits on Monday, you won’t spend $100 over the weekend. Not sure how to create a budget? Why I have a few posts about different budgeting methods:

The monthly budget combined with the cash flow budget
The envelope budget
The irregular expense budget

Spend Only Cash
Some people aren’t good with plastic, and that’s fine. If you tend to overdraw when using your debit card or go over limit with your credit card, withdraw a fixed amount of cash from your account weekly and stop spending when the cash runs out for the week.

Keep Your Balance on a Post-It
If your account balance is low and you have errands to run, check your account balance and deduct any pending checks or purchases from it. Write the remaining amount on a Post-It and stick it to your debit card. Record each purchase as you make it, and then stop swiping the card when your balance gets low. I’d leave a $10 cushion in case any checks or payments post incorrectly. It’s better to leave a cushion than to fight the bank to credit you later.

Spend Less Money
If you frequently overdraw your account, then you’re spending more than you earn. It’s time to cut back. Start using grocery coupons, take your lunch to work, stop engaging in retail therapy, sell some stuff to raise funds, drive less, whatever it takes to bring your spending below your income.

The Financial Times article noted that 10% of the population pays 90% of the overdraft fees. If you’re in that 10%, it’s time to start managing your money. If overdraft protection kicks in just once per month at $35 each time, that’s a savings of $420 a year. I can think of a lot of things I could do with $420 besides give it to a bank.

Once again it’s been a month since my last stabby post, but I’ve found something that REALLY gets my goat. Get ready for it: more AIG bonuses. As you’ve probably heard, AIG is asking for permission to award yet more bonuses to the division that is at the center of the global financial collapse. I’m beginning to wonder how AIG defines “performance.”

Bonuses in the Real World
In the real world occupied by those of us outside the financial system, a bonus for performance is generally assumed to mean good performance. In this economy, even employees who are providing excellent service to their employers are not getting bonuses.

In fact, some executives and employees are taking pay cuts to keep their company afloat, regardless of performance. They certainly aren’t getting bonuses after losing the company money.

Bonuses in the AIG World
I could sort of understand bonuses paid to high-performing employees in other sectors of AIG’s business. Their regular insurance business is still healthy. The only sector of their vast business that went bad is the financial products division that sold insurance policies on derivatives based on imaginary numbers. So fine, if they want to pay bonuses to employees who genuinely did a good job in other sectors, I don’t necessarily take issue with that. Especially if it enables AIG to keep good employees in profitable divisions.

However, AIG seems intent on issuing “retention” bonuses to the very people who created this mess in the first place. Why do they want to retain these people?

Their first argument is that they need to keep the people who understand what they created so they can help undo it. It’s a faulty argument because clearly these people don’t understand what they created. If they did, they wouldn’t have done it!

Their second argument is that these people will be hired away by other large companies. Again, who would want to hire them right now? Here’s how I imagine that interview going:
“You worked for AIG’s financial products division?”
“Yes.”
“How much money did you earn for AIG?”
“My deals cost the company $20 billion.”
“Get out of my office.”

I realize that these people will eventually be hired by other companies. We have only to look at Robert Nardelli to find proof of people failing upwards.

Are They Kidding?
Seriously. What are they thinking? These employees may have brought billions of dollars into AIG at some point, they have now cost the company over $100 billion. Billion. How can they possibly argue that paying them “retention bonuses” is a good use of money? I don’t care that it’s “only” $235 million. Part of that is my money. You want to give someone a bonus? Give it to me! Or how about using it to pay back what the government invested in you so we can start to pay down our massive federal debt, which is now more massive thanks to AIG?

There are lots of options besides paying “performance” bonuses to people who lost the company, and therefore taxpayers, gobs of money. Unless, of course, “performance” means “breathing.” In which case, woohoo! Bonuses for everyone!

You’ve probably seen distressing news reports about the failure of the new home appraisal process (called the Home Valuation Code of Conduct) for loans eligible for purchase by Fannie Mae and Freddie Mac. It doesn’t apply to FHA loans or jumbo loans. Since the new system went into effect on May 1, 2009 it has sent home appraisals into chaos. Some deals are falling apart, and appraisers, loan officers, consumers, and real estate agents alike are complaining about the whole process.

The New Appraisal Rules
Under the old system, your loan officer would review a list of approved or known appraisers familiar with the location of the home and then choose one to schedule the appraisal. It usually cost the consumer about $300 and took about 3-5 days. The appraiser, the lender, and the real estate agents could all communicate with each other. Some large banks did use appraisal management companies (AMCs), but loan officers could still contact the appraisers assigned by the system. If your bank didn’t approve your loan, you could take the appraisal to another bank without paying again.

Under the new system, the loan officer can’t speak to the appraiser. Instead, the lender orders the appraisal from the AMC. The AMC assigns the next available appraiser in the geographic region. The appraiser conducts the appraisal and enters the report into the system within 24 hours. The appraisal is reviewed be a supervisor who may not be local. It is then sent to the loan officer.

Why the New System is Bad for Everyone
Consumers:
the major reason this new system is bad for consumers is the cost. Instead of the average $300, it now costs at least $400. Ours cost $540 because our home is worth more than $500,000. In addition, we had to pay that up-front via credit card rather than pay it at closing.

Appraisers: Rather than receiving the bulk of the appraisal fee, most appraisers now receive $200 or less and have to turn it around faster. In addition, they may have to conduct an appraisal far outside of their area of expertise. In our case, the appraiser came from a different county, nearly 40 miles away.

Real estate agents: Real estate agents are concerned because the appraisals are derailing contingency periods, while REO sellers (banks) are pushing for shorter contingency periods. They’re also concerned that appraisals are coming in low. Low appraisals may be valid if they reflect the market, but they’re a problem if the low value is based on inaccurate comparables.

Lenders: Finally, lenders don’t like the new system because they’re cut off from the process. The loan officer can’t call the appraiser to check on a late report. If there’s a problem, they can’t contact the appraiser to have it corrected or supply more accurate comps.

I spoke to our loan officer today and he said about 2% of appraisals come in high. 70% come in on target. Nearly 30% come in low.

Our Appraisal Story
We’re buying an REO, which means the bank insisted on a 10-day contingency period for our inspection, appraisal, and loan application. Traditionally, appraisals are conducted before inspections to avoid wasting money if the appraisal comes in low. Initially, were going to have to do our inspection immediately because of the short timeframe, but the bank was slow to assign an escrow company, which bought us enough time to get the appraisal done first. Here’s the timeline from the day our offer was accepted.

Day 1: Offer accepted. Interest rate locked. Appraisal ordered.
Day 2: Updated financial documents delivered to complete loan application.
Day 3: Appraiser calls our agent to confirm appraisal.
Day 5: Appraisal conducted.
Day 8: Escrow opened. Contingency period starts.
Day 9: Appraisal returned. It came in exactly at our purchase price, and our file was sent to underwriting.

From what I hear, this was a relatively quick process. Some people wait 10 days or more to get an appraisal.

Why the New System Was Introduced
As we all know, there was fraud in the system. Washington Mutual had a cozy relationship with appraisers and would demand that they “hit the number” or risk not being assigned another appraisal. This led to the rapid increase in valuations, many of which were not sustainable or were tied to fraudulent loans.

New York Attorney General Cuomo threatened to sue over this fraud unless the new system he created was instituted by Fannie Mae and Freddie Mac. The irony is that Washington Mutual was using an AMC it owned. Furthermore, AMCs are unregulated. Independent appraisers are regulated. So he took a regulated system with some bad actors and replaced it with an unregulated system that does little more than reap massive profits for AMCs, most of which are owned by banks.

We were lucky. Our appraisal was returned quickly (but not without a week of stress for me.) The appraiser did a good job and pulled appropriate comps. Most of all, we can afford to pay the appraisal fee up-front. Although it will be credited back to us at closing by the lender, but we’ll have to pay our credit card bill before we close.

If you’re in the process of buying a home, you need to be aware of this new system and plan accordingly. You may also want to ask your agent to pull his or her own comps in case you need to make a case for your purchase price.

As I said last year when Heath Ledger died, my first thoughts always go to the children of the deceased. I worry that stars with young children haven’t prepared for the possibility. In Heath’s case, he hadn’t updated his will to include his daughter. Now we have the even more challenging situation of Michael Jackson’s death. According to court filings, Michael Jackson died without a will. No matter how famous or unfamous you are, take this as a lesson that you need a will, especially if you have children. Even better, get a trust.

Why You Need a Will
In the average Joe’s case, a will states the people you would like to inherit your estate. In most cases, surviving children or spouses will automatically inherit without a will, but it’s ultimately up to the state to decide. Do you trust the government to divide your estate for you?

What Happens if You Die Without a Will
In Michael Jackson’s case, his intestate death will result in years of legal wrangling and thousands of dollars in legal fees. Like Elvis, he is probably worth more dead than alive. (It sounds callous, but it’s true. His estate will continue to earn royalties for decades after his passing.) If he had a will or trust, he could have named someone to oversee his business following his death. Now the court will determine who has that right. Most likely, his children will inherit everything, but they are minors and will therefore need someone to manage his affairs until they are adults.

In addition, a will would have allowed him to name his children’s legal guardian. Some reports said he wanted them raised by his nanny. Other reports indicated that the birth mother of two of the children may make a claim. The courts have so far granted custody of all three children to Jackson’s mother, but that could change. If multiply custody claims are filed, this issue could drag on for quite some time.

A Trust is Better than a Will
Given the size of his estate, Jackson would have been better served with a trust. A will must still pass through probate court, which can be expensive and slow. A trust typically avoids the courts while also ensuring that the children’s rights are protected and their financial support arranged from day one.

But I’m Not Famous, You Argue
Some people argue that they don’t have assets, therefore they don’t need a will. If you’re childless and living in your car, that’s probably true. However, if you have children, you need a will or a trust, regardless of net worth. It’s the only way to ensure that your wishes are carried out, rather than the wishes of the state. If you have any assets, even a falling down shack, consider a trust to reduce the tax impact and transfer time of the assets. When minors inherit a trust, the trust maintains ownership and the designated trustee is responsible for managing and distributing the assets. That won’t happen in Jackson’s case.

Many people worry about the expense of creating a will or a trust. If your estate is complicated, you should see a lawyer. If it’s fairly uncomplicated, you can use a legal service site like LegalZoom.com to prepare your documents quickly and affordably. Worst case, handwrite your will on a piece of paper, sign it, and put it in a safe place. These aren’t legal in some states, but it’s something at least. A formal will or trust is always best.

In case you haven’t heard, California is headed for disaster. No, not the Big One, an economic disaster. Because voters rejected some taxes and cuts that would have resolved our budget issues for this year, the governor is making draconian cuts to try to shore up our collapsing budget. Basically, we’re broke and the voters didn’t want to fix it. That’s just how we roll.

Play the Budget Game
You may have played the national budget hero game at Marketplace.org. If you played a few months ago, it’s now been Obama-ized for the new economic reality, so go back and play again.

Once you fix the Federal budget, give the California budget a try.  California has to trim $24 billion from the state budget in order to balance the budget. The LA Times tool lets you cut programs and add taxes, but also informs you when some of the cuts may be illegal or impossible to achieve. I managed to get it down to a $6 billion deficit.

How Does Your Personal Budget Compare?
So now that you’ve taken a whack at the California budget, which is larger than the budget for several small countries, it might bring your own budget woes into perspective. If you’re willing to increase the cigarette tax by $1.50 to close the budget gap for California, maybe it’s time to cut your own budget by $5 a pack by quitting smoking, for example. If you want to cut the Office of Emergency Services, maybe you should also increase your personal insurance deductible to at least $1,000 to cut your own insurance costs.

At first it seems hard to cut your personal budget, but once you compare cutting a few thousand from your budget to cutting several billion from a state budget, it seems more doable.

At the very least, this game makes you reconsider what you expect government to provide for you, and what you’re willing to offer in exchange. One thing is for sure: you can’t have low taxes and full government services at the same time. There are costs. Even if you cut government waste, there are still a lot of costs associated with services.

Now, if you want to have some real fun, play your own budget game by seeing how your budget categories line up to recommended averages with the CNN Money budget tool.

I was okay with the new car tax deduction. It didn’t offer a huge incentive to buy a new car or pose a big burden on the federal budget, but it was a nice bonus for people who planned to buy a new car anyway. Now the House of Representatives has passed a new “cash for clunkers” voucher program, AKA bribe, that is really making me stabby. There’s no telling if the Senate will pass it, but the very idea makes me so stabby that I nearly have the vapors. Someone get my smelling salts.

Cash for Clunkers = Bribes for Getting New Cars
The bill purports to offer an incentive for people to replace their old gas guzzlers with new energy-efficient vehicles. The House defines a gas guzzler as anything getting less than 18MPG. I can completely agree with that – that’s really bad mileage and I can understand people wanting to get rid of them. That’s not the part that makes me stabby.

This is: a “fuel-efficient” car is anything that gets over 22 MPG! 22! And the bonus for gaining a measly 4 MPG? $3,500! If you’re really bold and improve your gas mileage by 10 MPG, you get $4,500.

But wait, there’s more. That’s for standard passenger cars, not SUVS, trucks, or minivans.

Someone hold me back, I’m about to rip my hair out.

If you own an SUV, truck, or minivan that gets less than 18 MPG, you can earn a $3,500 voucher for buying a new SUV that does 2 MPG better. Yes, that’s right, choose an SUV that improves your gas mileage by TWO miles per gallon, and you get $3,500.You get the full $4,500 by buying an SUV that gets an extra 5 MPG.

And if you’ve got a really heavy truck, you only need to improve by ONE MILE PER GALLON.

I think I’m going to cry now.

This is Not about Fuel Efficiency
If the government was really concerned about encouraging people to buy more fuel efficient cars, they have a few options:

  1. Establish the Cash for Clunkers program with minimum improvement requirements of 15 MPG. That would require people to buy cars with a minimum mileage of 33 MPG. For those of you paying attention, that’s 2.5 MPG less than the new fleet-wide minimum CAFE standards that are mandated by 2016.
  2. Increase the gas tax. Want to see people flock to fuel-efficient cars? Make them pay more for gas. It worked when gas prices shot up, it would have a more permanent effect if the base rate was always higher.
  3. Levy additional taxes on gas guzzlers. It’s simple – want to buy a Hummer? Pay a sin tax at purchase. $3,500 sounds fair.

Why This Makes Me Stabby
The House of Representatives wants our government to spend $4 billion to fund this program that will do very little to improve fuel efficiency, reduce our gas use, or reduce our impact on the environment. It’s basically designed to sell all those cars sitting in dealer lots right now so they can start making new ones. How about they just cut the price instead of asking the government for more hand-outs? Reducing the price by $4,500 would do a lot to help move those cars and taxpayers wouldn’t have to get involved.

Potential Upsides
This bill does have potential benefits. I can think of two:

It will stimulate the auto industry. This particular bill doesn’t support any specific car company, in fact it might help foreign automakers more than US automakers. Although you could argue that some fuel-efficient Toyotas and Hondas are built in the US, so they’re American cars anyway and are saving American jobs.

It will get those older, less efficient cars off the road. Once traded-in, the engine, transmission, and some other parts will be destroyed so the cars don’t return as used cars.

Those benefits are not enough to outweigh the downsides for me. I DO NOT support this bill. If you agree, it’s time to call or write your Senator. Urge them not to pass this bill. I will write my Senators just as soon as I stop screaming.

Over the course of the last two weeks, mortgage rates “skyrocketed” from 4.85% to 5.45%. Some people are acting like this is the end of the world, but really it’s not. Although it will affect people’s bottom lines, in the long run it’s probably good for the economy.

Higher Interest Rates and Your Current Mortgage
If you already have a fixed-rate mortgage, then higher interest rates have no immediate affect on you. If your rate is already around 5.5% and you were trying to refinance, there’s no point in doing that now. However, it probably doesn’t really affect you because most people were unable to complete a refinance when rates dropped – the banks were too swamped to close the loans during the lock period.

If you have a rate above 6%, then it’s still worthwhile to refinance, and it may actually be easier to close now because there are fewer people trying to do it.

If you have a variable-rate mortgage, now is still a good time to try to refi into a fixed rate. Ultimately, mortgage rates will have to move higher. I don’t think we’ll see the double-digit rates of the 1980s, but 6-7% is not unthinkable.

Higher Interest Rates and Prospective Buyers
If you’re trying to buy a home, then higher interest rates could impact your ability to buy. When my husband I were first approved for a loan, rates were around 5.5% and we had 15% down. We set our max price at $600K. When rates fell to 4.85%, we could have pushed our limit up a little, but chose not to. With rates higher again, we’re back to where we started. The difference for us is about $270 a month, but we had already budgeted that amount.

If you don’t have 20%, or are trying to do an FHA loan with 3.5% down, then higher interest rates could reduce your price range. These loans have PMI, which is already $200 a month extra (in the $600K price range). Add an extra $310 a month in mortgage costs, and you may not be able to afford that anymore.

However, if you can still afford to buy, you may see less competition for homes, and you may actually be able to close your loan in 30 days because loan processors aren’t overburdened with refi applications.

Why Did Interest Rates Rise?
Interest rates rose because they were so low that it was inevitable. Rates only dropped as low as they did because Treasury was buying up bonds. The US can’t afford to continue that forever. Non-Treasury bond buyers were demanding higher yields at the same time that a stock market rally was decreasing demand for bonds. Bond buyers were also concerned about inflation, which is another reason rates moved higher. The economy needs bond buyers in order to make a complete recovery.

In addition, the short-term Fed rate is currently 0%. It can’t stay there. Some experts expect the Fed to increase it by the end of the year, which is a hopeful sign that the economy is improving. When that rate rises, other rates will probably rise with it. It’s not a direct correlation, but it has an effect.

Some mortgage experts predict that rates will rise a little more and then come down again. Probably not as low as 4.85%, but I consider anything below 5.5% to be a great rate, and 6% to be completely reasonable.

What Should You Do?
Rather than setting a price based on the lower interest rate, figure out what you can afford to pay each month regardless of the current rate. Ask your mortgage broker to use the current interest rate to give you an estimate for the home price that correlates to the monthly payment you can afford, but also ask what you could qualify for if rates went up to 6%. Use that number as a guide to what you can afford. Then you’ll be in an even better situation if rates fall again.

Also keep in mind that higher interest rates often result in lower home prices, because people can’t afford to overbid by quite as much. You could end up getting the same home with the same payment for a lower price if this trend continues.

If you own a Chrysler or GM car, you may be wondering how the GM bankruptcy and Chrysler collapse affect you. Rest easy – your car is still covered by the warranty. If you’re in the market for a car, you’re probably seeing great deals on the American brands. The question is how comfortable you feel buying one. Here’s what you need to know.

Warranties during Chrysler and GM Bankruptcies
The GM bankruptcy is actually fairly straightforward from a consumer perspective. The company isn’t going to cease to exist, although some brands and dealerships are being shuttered. The government has a funded program in place for both GM and Chrysler to guarantee your coverage for the term of your warranty. Federal law requires that your parts continue to be manufactured, so you won’t be unable to get the parts you need. You also don’t need to contact the government to file a claim. The dealership will take care of it.

Loan Payments during the Bankruptcy
If your bank went bankrupt or sold your home loan, you still have to pay the mortgage. The same holds true of any payments you owe on your car. Continue sending payments on time to the same address until you receive a notice indicating a new address for your payments.

Buying a Car from a Bankrupt Manufacturer
This is a little more tricky. If you’re in the market for a car, you may be able to find some great deals on Chryslers and GMs. The question comes down to whether or not you’re comfortable buying a car from a company in bankruptcy or have faith in its current models.

GM
GM is expected to continue to exist after they emerge from bankruptcy. So, the question is not whether you’ll still be able to get parts and warrant coverage. It’s a question of whether or not you believe in GM quality.

I imagine GM to be in the same situation as United or Delta airlines when they were in bankruptcy. People didn’t stop flying those airlines while they were in Chapter 11. You shouldn’t avoid GM just because it’s in bankruptcy. Consult expert reviews, quality ratings, fuel ratings, maintenance ratings, etc. just as you would for any other car purchase if you have a GM car on your list. You may want to consider that GMs may have a lower resale value after they emerge from bankruptcy, but the resale wasn’t all that great to begin with and is not a huge factor if you own a car for ten years, as I recommend. http://www.soundmoneymatters.com/lease-vs-buy-a-car/

Chrysler
Chrysler is the sticky wicket. Although it will soon re-emerge as a partnership between Fiat and the Chrysler arm of the UAW, only time will tell how Fiat will manage its new brand. Chrysler’s current line of cars is not well-reviewed or considered to be very reliable. Fiat hasn’t been in the US market for some time, but European cars do tend to be smaller and more nimble. If I had a choice, I would wait to see the new designs they come up with for Chrysler before opting for one of these cars.

Ford Is Fine
For anyone concerned about Ford, they are not bankrupt. They have not received bail-out funds. They’re suffering from the downturn, but they’re not currently at risk.

Would I Buy a GM?
Because of my GM bail-out stabby post, some people think I hate GM. I honestly don’t. I don’t hate Chrysler or Ford, either. I think they’re all lumbering companies with outdated business models that need to seriously change if they want to succeed in the future. I also think they have serious reputation issues due to decades of poor manufacturing.

I have actually owned a GM. My first car was an early-90s Pontiac that I later learned was made by Daewoo, which was new to car manufacturing at the time. I’m lucky to be alive after owning that car. Due to the design, it regularly overheated in traffic. When it overheated, the brakes failed to work properly. So picture me sitting in Thanksgiving traffic on a hilly freeway with a car rapidly rising in temperature and my brakes getting softer by the minute. I was lucky to be able to get off the freeway and coast to a stop to wait for my car to cool off so I could get home. The car was replaced one month later by my Toyota. I will never buy another GM. I won’t buy a Daewoo, either.

A car is a personal purchase. Some people feel the need to buy American, and that’s fine. I only ask that you do all your research before you decide which car to buy and don’t let the GM bankruptcy play into your decision if you believe they make good cars. If you have more questions, see the New York Times piece on the bankruptcy.

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