GM Generali

Generali (AQEU:GM)
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The U.S. government Monday revealed the details of a highly unusual plan it hopes will ease consumer concerns about purchasing new vehicles from struggling domestic automakers.

The plan calls for the creation of cash accounts that would equal 125% of the projected costs of paying claims related to warranties on each new vehicle sold by General Motors (GM) and Chrysler while they are in the midst of a government-led restructuring.

The U.S. Treasury will contribute 110% of the cash required for the accounts while the automakers contribute the remaining 15%. A special purpose company holding the funds would be run separately from the automakers, allowing it "to continue paying warranty claims even if the auto manufacturer goes into bankruptcy or goes out of business."

Should GM or Chrysler fail, the government would honor warranties through the use of an outside auto service provider. "Because of the significant funding of the reserve account, Treasury is confident that qualified third parties will be interested in taking over warrantee obligations," the Obama administration said in a two-page document describing the program.

"No matter what the outcome, consumers should have confidence that if they buy new cars from either company their warrantees will be honored," the document said.

Treasury will support the program through its Troubled Asset Relief Program, a $700 billion dollar financial industry rescue effort that is estimated to hold $135 billion in remaining funds.

 
   -By Meena Thiruvengadam, Dow Jones Newswires; 202-862-6629; meena.thiruvengadam@dowjones.com