If you’ve tried buying a used car recently, you know how crazy the demand is for good pre-owned vehicles. With the ongoing supply-chain issues (including the microchip shortage that’s still going strong), dealerships have struggled for the last year or so to keep up with customer demand. This has led to auto manufacturers instituting a number of policies to try to support their dealerships and keep as much business coming to them––rather than private sellers or third-party companies––as possible.
We saw this last year when numerous car companies started stipulating that leased vehicles be returned to dealerships at the end of the lease rather than allowing them to be sold to other companies. The latest step in fighting against drivers flipping their vehicles has come from GM. In July, a letter from the president of GM North America indicated that certain high-demand models would lose their factory warranty coverage if resold within 12 months of their original purchase date.
GM Warranty Coverage and Transfers
At the moment, or at least leading up to this point, GM vehicles come with several different types of warranty coverage. Chevy, Buick, and GMC models feature a five-year/60,000-mile powertrain limited warranty and a three-year/36,000-mile bumper-to-bumper limited warranty. Similarly, Cadillac models are covered by a six-year/70,000-mile powertrain limited warranty and a four-year/50,000-mile bumper-to-bumper limited warranty. GM models have additional coverage for their safety systems and other components, but the powertrain and bumper-to-bumper warranties are the big ones.
In general, as long as the original owner of a vehicle follows the terms to maintain their warranty protection, any remaining warranty coverage is transferable to the next owner. As long as someone who buys a brand-new Chevy, Buick, GMC, or Cadillac doesn’t void their warranty, they can turn around and sell their vehicle the next day, and the powertrain warranty will transfer to the new buyer. But that’s all about to change…
Upcoming Changes
According to a letter sent by Steven Carlisle, the president of GM North America, “When vehicles are quickly resold, particularly by unauthorized dealers or other resellers that do not adhere to GM’s standards, the customer experience suffers and GM’s brands are damaged.” I’m not sure I agree with that sentiment, but it’s entirely possible that this language is more than just a statement of concern about people reselling vehicles quickly. The statement “GM’s brands are damaged” may be a subtle warning to dealers that flipping vehicles will be seen as harmful to GM and could be grounds for ending dealership franchises.
The action that GM is taking is twofold: for starters, it will void warranties on certain models resold within 12 months of when they’re sold as new rather than making the warranties transferable to the new owner. Second, GM will bar buyers from future orders and purchases for some high-demand models if that buyer resells vehicles within the first 12 months. At the moment, only three models are affected by these new warranty terms: the Cadillac Escalade-V, the Chevy Corvette Z06, and the GMC Hummer EV––both the truck and SUV versions. However, more vehicles could be added to the list in the future.
To be absolutely clear, this change does not impact any vehicles that have already been sold. Any vehicle that’s already been sold as new is under the previous warranty coverage, which includes the warranty being transferable no matter when you sell it. All vehicles that have been sold were purchased under an established warranty, which is a legal agreement, so nothing is being changed. Only vehicles that are sold in the future will have this new warranty coverage and these terms.
What Does This Mean for Buyers?
If you’re planning on buying one of these high-demand vehicles, you should understand that it will be included in these new warranty terms. However, if you have no interest or plans on selling said vehicle within 12 months––in other words, flipping it––then you have nothing to be concerned about, and this won’t impact you at all. On the other hand, if you are interested in buying something like the Corvette Z06 to enjoy for eight months and then selling it to make a lot of your money back, you might be in a rough spot.
It’s hard to say whether eliminating the warranty coverage on one of these vehicles will be enough to discourage reselling or cause a reduction in overall value. Personally, I wouldn’t risk it because there’s definitely the potential for a loss in value for a used model that’s only a few months old but no longer has any warranty coverage. Considering the price of these models and how long their warranty coverage should be, it’s just not worth it as far as I’m concerned.
At the same time, I’m not entirely convinced that short-term ownership and flipping of vehicles is that huge of a problem for the average driver. Most drivers looking to enjoy a new vehicle for a short time would be better off just leasing a car rather than paying on a loan and trying to resell the car within a year. A lot of people seem worried about how this impacts them, but it’s hard to imagine that a large number of car buyers will actually be affected by this.
Are There Other Consequences?
The people it will definitely affect, and those who should be concerned, are those who use car flipping to make a serious profit and even utilize it for a business. Car dealerships and third-party companies that try to boost their sales numbers by selling new vehicles and then quickly flipping them are the ones that really need to be worried about this. The fact that this new policy isn’t just designed to affect the warranty but also the ability to pre-order and reserve vehicles for customers is huge.
This is going to reinforce the idea that dealerships need to stick to traditional methods for car sales: either through loans or by leasing a vehicle to those who only want a new model for a relatively short period of time. With demand so high and supply still trying to catch up, it makes sense that GM is trying new ways to keep the market stable and ensure drivers can buy vehicles. I find this to be even more the case due to the fact that this letter was sent by GM to dealerships rather than as a press release to the general public. Everything about it feels like a warning to dealers to follow their rules or to have their supplies get choked even more.
Headlines are all focusing on GM voiding their warranties if a vehicle is sold within 12 months, which I understand, but that’s honestly secondary from my perspective. The voided warranty reduces the value of a flipped vehicle, sure, but cutting into pre-orders for a dealership is far more significant. It’ll be interesting to see if any other car companies follow this practice in the same way we’ve seen numerous companies change the terms of their leases. We’ll have to wait and see how the market evolves as supply keeps trying to catch up to demand.
