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GM stretches to 100,000-mile warranty

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KAI RYSSDAL: It was a pretty good first day at the office for new Ford CEO Alan Mulally. Ford shares jumped better than 3 percent today. General Motors did pretty well, too. About a 2.5 percent rise there. The company's appealing to the baser instincts of the American car buyer. Free repairs. Detroit's been suffering from a perception its cars just don't hold up as well as their Japanese competitors. So this afternoon GM announced a new extended warranty program for its 2007 models. Rachel Dornhelm took a look at whether it's a sound business plan, or a lemon.


RACHEL DORNHELM: CEO Rick Wagoner announced the new 100,000-mile, five-year warranty for all GM brands.
RICK WAGONER: Our announcement today is a clear sign of the confidence we have in the quality and value of our cars and trucks.

But will consumers share that confidence and start buying? Jeff Schuster is with the car rating service J.D. Power.

JEFF SCHUSTER: If we see the improvements in many of the products' quality levels again this year, yes, I think it can work.

He says the big challenge for GM will be ensuring consistent quality for all their models.

SCHUSTER: They've had very bright spots and then they've had some mediocre products on the quality side as well.

Still, it would be hard for GM to lose. Schuster says extended warranties generally work in a car company's favor. Only drivers who are very rough on their cars or live in extreme climates tend to benefit from the policies.

Rebecca Lindland, an auto analyst with Global Insight, agrees it's good for GM.

REBECCA LINDLAND: When you look at the success that Hyundai and Kia have had by offering these extended warranties, it really makes a lot of sense.

Hyundai pioneered the 10-year, 100,000-mile warranty after problems in the '90s. Its sales jumped 82 percent in the first year. But Lindland warns GM's coverage isn't bumper to bumper.

LINDLAND: What they're not extending their warranty on is the touchy feely parts of the vehicle. But they are extending the very expensive part of it, which is the powertrain.

Also known as the engine and transmission. The new deal also extends roadside assistance and other perks. Lindland says the industry will wait to see if Ford and Daimler-Chrysler match GM's move.

I'm Rachel Dornhelm for Marketplace.

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