The Homa Files

Ken’s Take: First, the gov’t tossed contract and bankruptcy laws out the window and screwed the secured creditor (i.e. bondholders) by subordinating their claims beneath unsecured UAW claims.

What I missed was that the gov’t was also tossing product liability claims out, too.  For example, if you’re driving a Chrysler car and the engine blows up because of a defect, your family gets zilch from the New Chrysler.

GM was trying to pull the same trick.  But, since GM is bigger and folks had time to think about the details of the gov’t orchestrated settlement, a ruckus broke out.

Now, the New GM will altruistically accept responsibility for claims that might arise from Old GM cars that are still on the road.  Big of them.

Question: why in the world would anybody buy a bond issued by New Chrysler and New GM, knowing that their security is, well, unsecured.

And, why would anybody take a chance buying a car from those companies.  You’ve gotta have a high risk tolerance, for sure.

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Excerpted from WSJ, “GM to Take On Future Product-Liability Claims”, June 28, 2009

GM under pressure from state attorneys general, has agreed to assume legal responsibility for injuries drivers suffer from vehicle defects after the auto maker emerges from bankruptcy protection.

The concession means consumers who are injured in car accidents after GM emerges from Chapter 11 protection will be able to bring product-liability claims against the new government-owned auto maker.

Under GM’s original bankruptcy plan, the auto maker planned to leave such liabilities behind after selling its “good” assets to a “New GM” owned by the government. That meant future GM car-accident victims who believed faulty manufacturing caused their injuries would be unable to sue the New GM. Instead, they would have been treated as unsecured creditors, fighting over the remains of GM’s old bankruptcy estate.

In court papers, GM maintained it was not legally-required to take on the claims, saying “federal-preemption” meant the bankruptcy code overrode state laws governing the rights of car-accident victims to sue the new GM. It also noted that Chrysler, which recently emerged from bankruptcy in a deal with Fiat, would not be responsible for such claims.

But the auto maker said it agreed to take on future product-liability claims “to alleviate certain concerns that have been raised on behalf of consumers.”

Full article:
http://online.wsj.com/article/SB124614495545265019.html#mod=testMod

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This entry was posted on June 29, 2009 at 7:26 am and is filed under Autos - Travel, Obama Administration. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.