Discontinued Car Brands - To Buy or Not To Buy?
Mercury, Hummer, Pontiac, Saturn and Oldsmobile are all discontinued car brands. It wasn't long ago that Plymouth, Studebaker, and AMC closed their doors too. Others may soon be on the chopping block. Beyond the brands that have disappeared, models within brands have been eliminated as manufacturers struggled to stay in business. For example, last year Chrysler ditched the Aspen, PT Cruiser, and Dodge Durango. (For background reading, see 5 Dead Auto Brands And Why They Died.)
Today's buyers face a key question: is it wise to buy a brand or model that is no longer being made? There are several issues to consider first.
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Purchase and Resale Prices
The good news is that showroom deals and manufacturer discounts are far more likely for discontinued models. Dealers have limited space, and are anxious to clear these cars from inventory and reduce their carrying costs. Ryan Dodson, internet sales consultant for Tynans Nissan in Aurora Colo., says "the Oldsmobile was a great GM product, but with the discontinuation of production, resale has plummeted and you are able to purchase these vehicles at lower prices than other GM models."
Professor George John, General Mills-Gerot Chair in marketing at the University of Minnesota Carlson School of Management, says that "buying a discontinued brand is essentially trading a low price today for uncertainty tomorrow." You are getting a new car now for the price of a used one. This only makes sense if you are planning to drive the car for several years and aren't concerned about resale and trade-in values. The normal rules of depreciation won't apply to discontinued brands.
One of the bigger fears among potential buyers is the future availability and cost of spare parts. This may be minimized due to the sharing of parts between some brands. Sarah Lee Marks of MyCarlady.com states that "unlike Saturn and Olds which use interchangeable parts with other GM models, parts for a discontinued model, even one still available in other countries, can be very difficult to find - and expensive."
Parts that are made by the auto manufacturer and its suppliers are referred to as original equipment manufacturer (OEM), or stock, parts. Many dealers will continue to carry these parts for several years as the discontinued cars are phased out. But at some point, it will become difficult and expensive to buy original parts.
When OEM parts are no longer available or are too costly, there will be aftermarket parts to close the gap. Professor John states that "OEMs normally order extra parts before shutting down operations, and may sell their tooling and part designs to third party suppliers. This ensures the future availability of parts that meet manufacturer specifications." Steve Hague of ProAutoBuying.com says that "aftermarket parts will usually be available for years following production stopping."
Warranty and Servicing
If the brand is sold to another company, the warranty will transfer to the new company. The warranty of a discontinued model will be honored by the parent company. GM has stood behind its warranties in the past and says it will do so in the future. However, there's an ongoing risk that GM or other companies could declare bankruptcy, placing all their warranties in jeopardy. (Find out how to know when it's time to replace your car in Your Car: Fixer Upper Or Scrap Metal?)
While your car is still under warranty, use only OEM parts for servicing; using other parts may void the warranty. Current law requires the manufacturers to produce parts for the entire warranty period. They usually continue producing parts beyond that point on vehicles that were sold in high volumes. Once the warranty has expired, you should be able to find an independent mechanic with the knowledge and expertise to keep your car in working order.
The Bottom Line
There are clearly trade-offs to consider when buying a discontinued brand. Marks emphasizes that "discontinued models may be 'great' buys at the time, but the upfront savings lose their luster twice as fast on the resale market, and pose a potential liability in an insurance total loss value." She also notes that "some banks will refuse to finance a 'new' discontinued model." Dodson says that "if you are looking for a reliable vehicle for a cheap price and are paying cash, then purchase these vehicles." (For more on resale values, see 10 Ways To Get Top Dollar For Your Car.)
Based on what has happened with other companies that have shut down, Professor John advises that "the amount of disruption to owners of discontinued brands is a function of scale and volume. The larger discontinued brands will be better supported in the future than the smaller brands and more exotic models."
That said, a minority of exotic models may attract collectors, and Hague believes "there are some cars that will be collector's items such as the Pontiac G8, so if you were to buy one and garage it or keep it in great condition, it may be worth more money than what you pay for it."
How long will you have to wait? "Now that's the question" concludes Marks.
(Catch up on the latest financial news, read Water Cooler Finance: Shocking Court Rulings, Sinking Markets.)