June 4, 2009
Government Motors – I mean – General Motors is doubling down on 363. That’s the magical section of the Chapter 11 bankruptcy code that allows filers to keep the good stuff and discard all the ick – one of the key pieces being liability for harm caused by defective products.
The week was a busy one on both bankruptcy fronts. U.S. Bankruptcy Court Judge Arthur Gonzalez Monday approved the sale of Chrysler’s assets to Italian automaker Fiat SpA on Monday, under Section 363. The ailing automaker had filed for Chapter 11 bankruptcy protection on after draining the U.S. Treasury of $8 billion in government loans to keep it limping along. The sale of Chrysler has been given a big government-sanctioned push through a 30-day transformation from bankruptcy to a new entity, called the Chrysler Group, owned by a United Autoworkers Workers union trust, Fiat and the U.S. and Canadian governments, which own small stakes.
Wednesday a coalition of victims and their lawyers, consumers and auto safety groups filed an appeal in the Chrysler bankruptcy terms protesting the indemnification from liability.
Elsewhere in the capital the U.S. Senate Committee on Commerce, Science and Transportation held a hearing on how the Chrysler and GM bankruptcies would affect dealers and consumers. Sen. Claire McCaskill (D-Missouri) briefly held GM CEO Frtiz Henderson’s feet to that fire. She asked directly if GM was following in the “unprecedented” footsteps of Chrysler in seeking protection from any liability claims. McCaskill’s pointed question took note of GM intention to honor warranties, conduct recalls and replace defective parts but take no responsibility for consumers injured by their products:
“But, if because of that defect a child loses their life – because of an accident – or if a man loses his legs because of an accident, that there’s absolutely nowhere for that person to turn. Now that to me seems like a very weird result. And it is very unusual in bankruptcy to have absolutely no requirement, no insurance for any kind of defects that may be there, especially if that product is going to be carried forward.”
Henderson tried to lightly apply some fudge, with a “that would be our expectation.”
But Senator Jay Rockefeller (D-West Virginia) wrestled a straight answer out of him.
“That doesn’t get you very far in West Virginia,” he said. “It’s either yes or no.”
“Yes,” Henderson said.
And GM has got it some defects. The automaker accounts for 35 percent of the death and injury claims reported under the NHTSA Early Warning Reporting data.
What’s a consumer to do? Well, avoiding those brands might be a good idea. In the interim, consumer advocates are lobbying for Chrysler and Fiat to accept responsibility for existing products –successor liability; to develop a victims’ fund that would allow current and future injured consumers to proceed with their cases; and to purchase a retroactive insurance policy purchased to cover past, present and future injury claims.