Biggest Car Warrantor Stops Sales, Closes Down
General Group International, the nation’s largest independent provider of automobile warranties, halted sales Wednesday and handed its warranty contracts to its insurance company for future servicing.
Los Angeles-based General Group went out of business after concluding that it could not find an insurance company willing to insure new warranty contracts arranged by General Warranty Corp., a subsidiary that provided extended warranties on new vehicles, said Debra Macalello, the company’s marketing director.
Macalello said General was forced to search for a new insurance company because its primary insurer--Baltimore-based Maryland Casualty Co.--recently decided it did not want to continue to guarantee new warranties. As a warranty administrator, General Warranty collects a fee for selling contracts and processing claims; the actual warranties are backed by insurance companies. General arranged extended warranties of five to seven years for dealers affiliated with major auto makers.
Macalello said Maryland Casualty will assume responsibility for General’s 2 million warranties nationwide. The insurance company will process current and future claims, she said. Some current policies will be effective for as long as seven years. Maryland Casualty will retain some of General’s 300 employees to service warranties, Macalello said. However, some of General’s sales and marketing staff--about 100 people--are expected to lose their positions some time after Sept. 14. No new policies will be sold, she said.
General Group, which is privately held, had revenues of $57 million and generated a profit in 1989, Macalello said. She said insurance companies declined to offer coverage because they were daunted by General’s large customer base--perceiving the pool of warranties as risky.
“There were no insurance companies large enough to insure us,” she said. “We’re a victim of our own success.”
Founded in 1981, General grew rapidly and became the sales leader among independent warranty administrators. However, the industry has been troubled in recent years. In all, at least 15 warranty administrators have failed in the past three years.
