Should you buy from a dying automaker?

By Liz Pulliam Weston

Extraordinary times in the car industry mean extraordinary deals.

Already carmakers are knocking thousands of dollars off sticker prices with incentives ($10,000 or more in the case of big SUVs and pickups) and payment-guarantee offers, while struggling dealerships are doing everything they can think of to beef up dwindling traffic. Even two-for-one deals are becoming increasingly common.

On top of that, you can now deduct the sales tax on a new car next April.

But is saving big bucks worth the risk of buying from an automaker that may soon be out of business?

Maybe. It depends on your financial situation, how much of a bargain hunter you are and how much risk you're willing to shoulder.

Here's what you should know:

• The Detroit Three are not created equal. Chrysler is widely regarded as the weakest of the big U.S. carmakers and seen as unlikely to survive. General Motors is on the ropes and will probably emerge as a much smaller company. Ford Motor is considered in the best shape, is currently not taking any bailout money, and has enough cash to operate for now.

• Even if a car company survives, not all of its cars will. GM's Chevrolet, Cadillac, GMC and Buick lines continue, but Saturn, Pontiac, Hummer and Saab are already headed for the history books. At Ford, the Mercury brand might be in danger, said Perry Stern, a senior editor at MSN Autos. At Chrysler, the Jeep brand has value and is likely to persist, he said, but "sad to say, the Chrysler brand may not survive, and, aside from the Viper and Ram truck business, Dodge may end up with the same fate."

• The value of a car's warranty may be uncertain. To combat that fear and stimulate sales, the Obama administration has set aside bailout money to guarantee the warranties of Chrysler and General Motors vehicles sold since March. And if a vehicle line such as Jeep is sold to a competitor, that competitor should honor the associated warranties. But if you own an older Chrysler or General Motors vehicle that is under warranty and the company were liquidated, you'd likely have to pay for the cost of repairs at an independent mechanic and then stand in line with all the automaker's other creditors to try to get reimbursed, said Philip Reed, the senior consumer-advice editor for Edmunds.com.

• Parts are parts. Over time, parts for discontinued car lines will get harder to find, but harder doesn't mean impossible. Of all the potential problems with buying from a troubled automaker, Reed said, this one is probably of least concern. "After all, you can still get parts for a '65 VW," he said. "There's no question that there are going to be parts around (for current model cars) for a long time."

• American doesn't mean inferior. Politicians and pundits have been trashing the Detroit Three, but domestic automakers have largely overcome the reliability and quality problems that plagued their vehicles in the past, and some of the new cars are truly outstanding. A 2008 Consumer Reports survey found Ford's quality on par with Toyota Motor's and Honda Motor's.

Stern cited the new Chevrolet Malibu, which won last year's North American Car of the Year award, and the Ford Flex and GMC Acadia as examples of Detroit's innovation and quality.

"You should ultimately buy the car that best meets your needs, but you would be doing yourself a disservice if you don't check out what the domestic car companies have come out with in the last year or two," Stern said. "So while the Big Three are having widely known financial problems, they are building quality, competitive vehicles that are worth consideration."

What this boils down to is:

If you're a belt-and-suspenders type . . .

You should buy from only the strongest carmakers, or at least opt for the strongest brands, if you're the kind of person who typically buys extended warranties and can't stand the idea of paying for repairs out of pocket.

Your caution doesn't cut you off from the deals, fortunately.

In fact, times are so tough in the car industry that most vehicle makers are offering incentives of some kind. (You can find current rebates here.) The weaker the brand or the automaker, the better the deal you may get. In fact, if you buy a Chrysler or GM product, the deal is in essence subsidized by bailout money.

If one of the big manufacturers were to liquidate rather than reorganize, its stock of cars and trucks would be sold off to satisfy creditors, creating fire-sale prices that would drag down the selling prices of all new vehicles, even from stronger automakers, for a while. So even a cautious buyer might see some savings.

On the other hand:

Continued: If you're willing to gamble . . .

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