G.M. and Chrysler: Who’s Really Bankrupt, them or us?

GM and Chrysler liability 8-27-09 jpeg

By Cary Lockwood, Your Auto Network Corp.

We have†been through a lot in this country lately. People losing their homes, their savings, their jobs; and at the same time we are facing the uncertainty that comes with new leadership in this country. With all of our day-to-day distractions and obligations, we sometimes miss key events, and sometimes these events could cause significant consequences in our lives unless we understand them and heed the warning signs.

If you would allow me, I would like to take a few minutes of your time to provide you with such a warning about an issue that could affect you and your family or perhaps a friend or loved one.

†There is some very disturbing news that has been swept under the rug that pertains to the bankruptcy of Chrysler and General Motors.

Chrysler

In my opinion, Chrysler’s good name and reputation went down the tubes with its chapter 11 bankruptcy reorganization. When Chrysler Group LLC emerged from their fast-track bankruptcy on June 1, 2009 this reorganization put our rule of law on its head, severely damaging the rights of the public.

Let’s take a closer look at the provisions of their bankruptcy:

U.S. Bankruptcy Court Judge Arthur J. Gonzales presided over this bankruptcy and he states that “The new Chrysler emerging from bankruptcy will not be liable for any product defect claims involving cars sold before it came into existence”, according to Business Week, June 10, 2009.

From what I see, this was not reorganization. Chrysler LLC filed for Chapter 11 and an entirely new company Chrysler Group LLC emerged. And, as with any new company, it does not have any obligation for products produced by another company.

There are approximately 31,000,000 Chrysler vehicles on the road today and, as noted by Judge Gonzalez, those vehicles have no product liability coverage with the new or old Chrysler because of this reorganization! If your vehicle has a defect and you are in an accident, you may not be able to sue either the old or new Chrysler. You will be able to file a claim with your insurance company, but depending on your coverage and the extent of the damages and injuries to you and your passengers (as well as other vehicles that may have been involved), you might find that your coverage is not nearly enough to cover your claim. This is what I understand happened in the case when Ms. Young was injured when her Jeep rolled over several times and is now paralyzed from the neck down, is in need of 24-hour-a-day-care and has no money to pay for it.

This also affects those that filed a product defect claim against Chrysler prior to its bankruptcy. Those that had filed a claim are now listed as an unsecured creditor with the old Chrysler and will only receive pennies on the dollar for their claim because the only items left in the old Chrysler portfolio were their bad assets.

Now, the new Chrysler Group LLC announced on July 22, 2009 that it would be providing new car buyers with a program similar to the Cash For Clunkers program by giving these purchasers up to a $4,500 incentive when trading in their Clunker or 0% interest for 72 months if they make their purchase prior to August 31, 2009. This would essentially provide the consumer who purchases a new Chrysler product with up to $9,000 in discounts if they have a trade that qualifies for the Cash For Clunkers program. Unlike the Cash For Clunkers program, Chrysler’s offer applies to any trade-in, regardless of the age or fuel economy of the vehicle.

Chrysler successfully shed its obligation for past and future product liability claims on vehicles manufactured before May 30, when most of the company’s assets were sold to a new company run by Italian automaker Fiat. -The Washington Post July 3, 2009

It is very important to remember that any vehicle that was manufactured by Chrysler prior to emerging from bankruptcy does not carry any product liability coverage from the manufacturer.† This would apply to just about every vehicle currently sitting on the dealer’s lot.

From what we understand, Chrysler has agreed to replace defective parts in existing cars that are sold after the bankruptcy ended.

Recently, I have learned that federal regulators have been prodded by a Senate committee to move promptly on a request that the Chrysler Group be required to display stickers on its used vehicles to warn prospective buyers of liability risks.††I believe this should also include any new vehicle manufactured by the old Chrysler, whether it is new or used, because neither type is under manufacture liability coverage according to The Washington Post.

There are approximately 31,000,000 Chrysler vehicles on the road today and in 2007, there were 5,940 fatalities in Chrysler vehicles and thousands of people were injured. We are unable to determine how many of these injuries and deaths were defect related.

Before moving on to the General Motors chapter 11 reorganization, I’d like to pose a few points and questions for you to consider about Chrysler products.

1. If new vehicles (manufactured before June 1, 2009) and used Chrysler vehicles had to carry a warning sticker alerting “a would be” purchaser to the fact that the vehicle did not have any product liability protection, do you believe that the vehicle re-sale values would plummet?

2. If your insurance company is unable to pursue the product manufacturer when they have to pay out many large settlements due to product defects, would they raise the insurance premiums on the owners of Chrysler vehicles? Would they spread this potential liability across all of its customers?

3. Chrysler is trying to regain market share by having a matching incentive of the federal Cash For Clunkers. Would consumers be better served if Chrysler used that money to pay for product liability coverage?

†I have found that current ownership of Chrysler is 55% Union owned, 20% Fiat owned, 8% U.S. Government owned and 2% Canadian owned. I have noted that Fiat could gain 15% additional ownership if they meet certain criteria, however I do not know who owns that 15% today.

General Motors

As with Chrysler, when General Motors filed for chapter 11 reorganization it emerged as a new entity. Having been in existence for over 100 years, General Motors Corp. became Motors Liquidation Company and transferred all of its toxic assets to Motors Liquidation in the reorganization. General Motors Company is the new entity that emerged from bankruptcy on July 10, 2009.

In early June, 2009, the judge in the G.M. bankruptcy case allowed the old G.M. to sell their assets to the new G.M. in the effort to reinvent themselves as a lean and competitive company.

There are approximately 74,000,000 General Motors vehicles on the road today according to the Insurance Institute of Highway Safety. And according to The New York Times on June 3, 2009, General Motors paid approximately $1,100,000,000 in product liability claims in 2007 and they also state that the Security and Exchange Commission found that G.M paid approximately $921,000,000. in product liability claims in 2008.

Unlike Chrysler, General Motors Company will allow for consideration of product liability claims made post bankruptcy, however if anyone or any entity had filed a claim against them prior to chapter 11 reorganization, they would essentially become an unsecured creditor and have to compete with other unsecured creditors for whatever asset value was remaining in Motors Liquidation.

Is that the way we do things these days in chapter 11? Those that have a court awarded settlement for damages are left to fight among other creditors in a newly created company that was set up for the sole purpose of eliminating exposure from lawsuits and obligations? These injuries and fatalities took place prior to chapter 11 reorganization. And now, Motor Liquidators can turn their back on those who have suffered injuries and death because of their product defects!

Today, the new General Motors Company is owned by the U.S. Federal Government (60.8%), the trust fund VEBA that provides medical benefits to UAW retires (17.5%), the Canadian government (11.7%) and the bondholders from the OLD G.M. (10%).

The Chrysler bankruptcy has been unlike any other, in part because of the federal government’s unprecedented role in orchestrating and financing the process. For accident victims, there have been particular problems. One is that there is essentially no insurance to tap. That’s because Chrysler self-insured the first $25 million of each accident, according to Barry E. Bressler, a Philadelphia attorney who represents injury claimants. Without outside insurance, plaintiffs are left to pursue an insolvent enterprise.-Business Week- June 10, 2009

On another very important point that we have no further information on, attorneys from several Ohio state agencies have asked General Motors for clarification pertaining to the manufacturers factory extended warranties that were paid for when the consumer purchased a G.M. vehicle. Are those extended factory warranties valid?

Other Points of Interest

1. Lawyers for consumer and accident victim groups argue that cutting off all avenues for redress for injury victims violates the bankruptcy laws and the United States Constitution.

2.† A bill proposed by Rep. Andre Carson would force both G.M and Chrysler to buy product liability insurance that would cover claims made against the companies for cars produced prior to their bankruptcies. Chrysler was self-insured for the first $25 million of each accident.

†3. The bankruptcy proceedings do not preclude accident victims from suing the dealers who sold them the cars.

4. The Federal Trade Commission is to report on plans to inform consumers about how the new Chrysler and G.M. may have limited the rights of the consumer for product defect.

Other Points to Consider:

1. How does this affect state Lemon Laws?

2. Will I still be notified from the old manufacturer if there is a recall on my vehicle? If so, will they cover the parts and labor?

3. If the manufacturer provides service on a recalled part and it is replaced, will they be responsible to any future product defects caused by this replacement part that could create a failure that would cause an accident with injuries or fatalities?

4. Why wasn’t there a fund set aside in these bankruptcies to cover product defect claims in these Chrysler and G.M. made vehicles?

5. Can I make a claim against the part manufacturer that had a defect and was the cause of an accident or fatality?

6. What kind of insurance do the parts manufacturers have and what happens if they go bankrupt as so many of them have?

7. If Chrysler and General Motors did not carry responsible insurance coverage pertaining to their product liability, shouldn’t the public have access to this information so that they can make a wise decision before purchasing a vehicle?

Conclusion:

In 2008, automakers recalled 10,200,000 vehicles in 642 recall campaigns, a 9% jump from 2007. These recall campaigns include 233 safety investigations up from only 98 in 2007. Of the 10,200,000 vehicles recalled, 360,000 were Chrysler (down from 2,200,000 in 2007), and G.M. had recalls involving 1,900,000 vehicles in 2008 (up from 538,000 in 2007) according to Chris Tutor for AutoBlog.com.

Consider this:† In the past, if Chrysler were required by the government to initiate a recall to make a $50 repair on a fleet of 90,000 vehicles, the cost would have been a staggering $4.5 million.¬† So, you can imagine that today, Chrysler will exploit bankruptcy laws wherever possible, as well as exert its influence in Congress so that it no longer is liable for its products sold by the old company.

Isn’t it time to tell our legislators that we insist on having federally appointed judges act in accordance with the laws on the books instead of making up the laws as we go? Wouldn’t it be a good idea to hold to the guidelines of the U.S. Constitution so that we are all provided with the security of the laws that are in place? Do one or two entities trump the rights of its citizens?

We have provided over $95,000,000,000. in loans and bailout funds to the auto manufacturers, GMAC Financial Services and other automotive related entities. Could we, as taxpayers, who are on the hook for this money expect to be treated fairly?

†Let’s hope we don’t witness what happens when there is a serious accident or fatality that occurs in a G.M. vehicle and the injured party has to face the federal government (majority owner of G.M.) in court to sue for damages!

As an automotive consumer advocate, I take my position very seriously. I present you with the information that I come across. I ask you to perform your own research so that you make an informed decision about your vehicle or one that you are considering in a new or used car purchase.

†I am not presenting this information to you because of a preference to other auto manufacturers, In fact, the only vehicles that I currently own were manufactured by Chrysler and General Motors!

†The opinions stated here are based upon what information is readily available and I am not rendering a legal opinion.† As your advocate, it is my mission to raise these questions, however.

Note: stealing is a bad idea, but asking to reuse our content is a good one!

For all of your car care questions or concerns, visit http://www.yourautonetwork.com/

2 Responses to G.M. and Chrysler: Who’s Really Bankrupt, them or us?

  1. Archie1954 says:

    Chrysler by taking such a stance is ensuring that most people will not purchase a new product from them. They are in fact a sleazy group of (need I say it) used car salesmen. So some braindead judge lets them off the hook for liability coverage. It doesn’t mean they have to take it. They have just proven to me that they are not to be trusted. I for one will never purchase another Chrysler made vehicle because of their mean spirited reponse to my request for a letter stating that the Canadian built Jeep Grand Cherokee I gave to my brother who lives in Northern California is basically the same car as the ones sold in the US. This letter is required by US customs to import a vehicle from Canada. While Chrysler admits that they are the same car they refuse to give me the letter so my brother has to return the car to me and I will attempt to sell it and send him the money so he can purchase something else and believe me it won’t be a Chrysler product. What a horrible gang of blackmailing thugs these Chrysler people are.

  2. Scott Taylor says:

    It’s no wonder the American made car market is in such sad shape. It seems that the corporate powers that be only care about themselves and their stockholders, rather than their customers. They seem to have forgotten that it is the customers that keep them in business so they can pay their dividends to the stockholders. I have never bought a Ford, but I applaud their resolve in not taking the bail-out money and still surviving. Henry would be proud!

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