The Warranty Insurance Signal

The Obama administration's decision to offer government backing for GM and Chrysler warranties is a clear signal of the direction they expect the companies to go in. If Obama thought that GM and Chrysler had viable business plan, with a good chance to restructure their obligations further, there would be no need for the warranty backstop.

What this signals is that Obama thinks there is a good chance that at least one of the companies will in fact wind up in bankrupcy. In which case, government backing of warranties is key to keeping public confidence high enough to keep the businesses running.