GM bankruptcy

As expected, today plaintiffs’ lawyers and attorneys general for eight states filed objections to the General Motors bankruptcy, saying it may deny hundreds or thousands of consumers access to due process if they are injured in or by vehicles sold by General Motors before the bankruptcy. (Read: "What does the GM bankruptcy mean to you?")

As in the Chrysler sale, GM’s Chapter 11 filing under “Section 363” of the bankruptcy code would allow the new GM to emerge “free and clear” of any liabilities for its older cars (although the company has said it will honor basic warranties for those cars that still qualify, and the federal government is backing up those warranties during the restructuring.) In the Chrysler bankruptcy process, certain lemon law claims were protected, while others were not. (Read: "Automaker bankruptcies may limit liability and lemon-law claims."

Critics say that nullifying all lemon-law and product liability claims allows GM to walk away from responsibility for its products and will make second-class citizens of uninformed or poor consumers who drive older GM and Chrysler vehicles. And by avoiding consumer protections that are standard with other automakers, they say it gives consumers a reason to avoid buying GM or Chrysler products in the future.

While there are an estimated 10 million used Chryslers on the road today, the number for GM is as high as 30 million. Sean Kane, CEO of Safety Research and Strategies, estimates that 3,400 more Americans may be injured or killed in GM or Chrysler vehicles in the year after the two companies emerge from bankruptcy.

While both companies would be liable for launching recalls and repairing defects in these vehicles, under current provisions they would not be responsible for injuries caused by those defects. In the Chrysler bankruptcy deal, New Chrysler will take responsibility only for lemon law claims on vehicles produced by the pre-bankruptcy Chrysler within the past five years.
The two companies combined account for a disproportionate number of claims against automakers, 47 percent, while their combined market share is just 38 percent.

To make matters worse, recalls are often based on liability claims filed in court. So if those cases can no longer be filed, there is concern that some defects may no longer trigger recalls.
We hope that as GM moves through the bankruptcy process, legitimate consumer claims do not become casualties of the restructuring.