Warranties?

I'm off skiing and finally able to turn my attention to writing and commenting on things for a bit.

I'm struck by the guys who are constantly saying on TV that the stigma of bankruptcy for GM can be avoided if only the government wer to guarantee the warranties on vehicles.

It strikes me as another example of theoretical academics who apparently still believe that the economists' theory of us all being rational actors is correct.  And if we were all rational actors, the only worry we would have as GM customers would be our warranties and future spare parts.

So let me say it here, because nobody else is saying it (except maybe Taleb):

We are not rational.  Our economic actions are not dictated by reason. And the big purchases we make are especially irrational.  Car purchases are particularly emotional, not rational.

Let's face it.  If we were rational, we would not buy huge SUVs just to drive solo to the supermarket twice a week.  We wouldn't spend extra thousands on amenities we never use.  Nobody in his or her right mind would buy a black vehicle in Phoenix.

So let's stop pretending that the stigma of bankruptcy can be solved by guaranteeing the warranties.  That's pure rational thought.  But the most profitable piece of GM is Cadillac, and Cadillac is in the business of selling image and exclusivity.  It's not about rational actors.

A bankrupt Cadillac ceases to be a viable brand.  You aren't going to spend those extra thousands in order to show off your bankruptmobile to your friends and members of the opposite sex.  You will, in fact, avoid it at all costs.

Unfortunately, all those people who are seeking solutions seem to be sold on the notion that we're rational actors.  They and their discredited theories could be the final nail in GM's coffin.

-btc