Automotive

GM to take on future product liability claims

Sunday, June 28, 2009

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automotive

DETROIT -- (06/28/09)--General Motors Corp. has maneuvered through a big legal hurdle as it emerges from bankruptcy.

GM has agreed to accept product liability claims, removing what could have been a sizable roadblock on the automaker's path to a quick sale of its assets and emergence from Chapter 11 bankruptcy as a new company.

The deal moves what could have a been a very big road block in the path to restructuring as GM has agreed to be responsible for any claims on a product, even after "New GM" is formed post-bankruptcy.

Consumer groups and state officials had threatened to block the sale because of product liability concerns. The new company will now assume responsibility for future claims involving vehicles made by the old company, according to documents filed in federal bankruptcy court in New York on Friday.

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Under the automaker's previous plan, "New GM" would not have assumed any liability for future claims related to GM vehicles made before the sale and creation of the new company. That meant that consumers who wanted to file a lawsuit related to a defective GM vehicle would have had to seek compensation from "Old GM," a collection of mostly unprofitable assets left over after the sale, where there likely would be nothing left to pay their claims.

The fact that 'New GM' will protect consumers injured by defective 'Old GM' cars is a positive development for public safety," The Ad Hoc Committee of Consumer Victims of Chrysler and GM said in a statement released Saturday.

But the group said more needs to be done, noting that GM's concession doesn't help people that have already been hurt by its vehicles. It also said consumers hurt by fellow automaker Chrysler LLC still have little recourse.

As part of its plan to sell most of itself to a group led by Italy's Fiat Group SpA and emerge from Chapter 11, Auburn Hills, Mich.-based Chrysler also asked the judge overseeing its case for permission to leave behind its past and future product liability claims.

Consumer groups, as well as several individuals with pending claims against Chrysler, objected and some even took their arguments to the Supreme Court before the sale was ultimately approved and the automaker emerged from court oversight shortly thereafter.

GM, which filed for Chapter 11 on June 1, has said it wants to spend no more than 60 to 90 days under bankruptcy protection and that a key part of meeting that goal will be a quick sale of the company's assets.

Under the deal brokered with President Barack Obama's administration, the U.S. government will get a 60 percent ownership stake in the new GM. The Canadian government will get 12.5 percent, with the United Auto Workers union taking a 17.5 percent share and unsecured bondholders receiving 10 percent. Existing GM shareholders are expected to be wiped out.

But even with the resolution of the product liability issues, GM still faces numerous objections to the sale, including ones filed by a group of its unsecured bondholders, a handful of states and cities and individual retirees and shareholders.