The Chrysler Group may extend its warranty coverage

By: Josee Valcourt at The Detroit News

The Chrysler Group may extend its warranty coverage on new vehicles to better compete with 100,000-mile offers by rivals Hyundai Motor Co. and General Motors Corp.

Chrysler told employees it is considering changes to its warranty program in a recent online question-and-answer session.

"With the recent increases in warranty coverage by some of our competitors, sales and marketing will likely re-evaluate the business case for our warranty coverage and act accordingly," according to a copy of the Q&A obtained by The Detroit News.

Chrysler spokesman Jason Vines confirmed the company is considering increasing warranty coverage. "We are doing some studies with customers to see if there is a level that makes sense," Vines said.

Automakers typically use warranty packages as a selling tool to convince car and truck shoppers that their vehicles are well-made and reliable.

But stretching its existing warranty coverage from 36,000 miles or three years to 70,000 or even 100,000 miles would be a strategic reversal for Auburn Hills-based Chrysler, which was purchased last month by Cerberus Capital Management.

In 2002, the automaker introduced a seven-year/70,000 mile warranty for all Chrysler, Dodge and Jeep models after a seven-year/100,000-mile limited offer helped spark sales in the wake of the September 11 terror attacks.

But the "7/70" deal ended in 2005 after internal research showed the package was no longer swaying consumers. It was replaced with a basic three-year, 36,000-mile warranty that covers engines, transmissions and other powertrain components.

Chrysler is reconsidering as South Korean automaker Hyundai continues to aggressively market its 10-year/100,000 mile protection and GM is touting its five-year/100,000 mile package, launched last year.

While Chrysler's earlier 7/70 offer helped dealers close sales, it did not significantly boost sales. The company ended it so it could spend the money to fund other programs, according to the Q&A.

GM says its program has been a success. However, as more automakers follow the move the impact could be diminished, said Jack Nerad of Kelley Blue Book, a guide for car buyers.

"With each succeeding manufacturer that does this, it will probably have lesser and lesser effect," Nerad said. "There was a time when the general warranty was one year. And now we're seeing more of the norm with even longer warranties, starting with Hyundai" and now including Kia and GM.

Longer warranties have been more of a defensive move by companies such as Hyundai to change consumer perceptions of their vehicle quality. The Chrysler, Jeep and Dodge brands were all rated below average in the recently announced 2007 J.D. Power and Associates Initial Quality Survey.

"It's a closing tool or an in-dealership tool," Nerad said. "It might help get you on the consideration set. And then if you're considering two similar vehicles, one of which has a much more attractive warranty, that might sway you."