"GM offers Refund To Car Buyers To Win Them Back"

http://autos.aol.com/article/gm-60-day-guarantee

Summary
In their new marketing campaign ‘May the best car win’, General Motor Co. introduces a Satisfaction Guaranteed program, where new car buyers may return their vehicles for a full refund within 2 months of purchase. Effective from mid-September to the end of November, each household’s new car buyer may take advantage of this program on Chevrolet, Buick, Cadillac and GMC branded vehicles with less than 4000 miles. Despite the company’s brink of bankruptcy earlier this year, GM Vice Chairman Bob Lutz is confident to regain consumers’ trust. He has told reporters that GM is in a strong position against other worldwide competitors. This is proven by the company’s ability to offer consumers with full money-back guarantees.

Connections
General Motor’s new Satisfaction Guaranteed program relates to Chapter 11’s refunds and returns of a business. In spite of the promotion it is bringing, it will dramatically influence the financial progress of the company. Unsatisfied customers can return their used vehicles to GM. A refund results in a reduction in the Sales, GST Payable and Bank value, as well as increasing the amount for the Returns and Allowance account. Despite having less cash but more inventory now that the program has commenced, the gross profit will similarly be reduced. This is due to the fact that if second hand vehicles are resold, the value will be significantly lower than new ones. Another aspect for the company to consider is the depreciation of second hand vehicles as they literally “sit” in the company, waiting to be sold. Second hand cars are less likely to be in demand nowadays, ultimately resulting in a reduction in GM’s equity. Therefore, it appears that the program’s cons overweigh the pros.

Reflections
Although Lutz has reassured customers that GM’s financial position is ‘good or better than everyone else’, my trust for them has instantly vaporized after hearing their financial downfall earlier this year. However, I agree that this new Satisfaction Guaranteed program may help GM in winning back the trust of car buyers. Right now near the end of the economic downturn, customers may want to take advantage of the fair price on new vehicles. Due to the high percentage of unemployment rate, it is not within people’s budget to purchase a new car easily. However, since the new program allow refunds, people will be more willing to purchase a car. Hopefully most consumers will be in GM’s favor and go “head over heels” in love with their vehicles, so they will not return them within the two months.