Lawyers cry foul over GM

Consumer groups and trial lawyers are crying foul over the Obama administration’s bankruptcy plans for General Motors and Chrysler.

Those plans would extinguish all ongoing auto accident claims that blame a death or serious injury on a defective GM or Chrysler vehicle.

ADVERTISEMENT
“It’s a raw deal for consumers,” said Clarence Ditlow, executive director of the Center for Auto Safety.

Ditlow said the plans are unusual in that they would prevent anyone from bringing a future liability claim against GM or Chrysler if a car already purchased from either company is defective and results in an accident causing death or serious injury.

He and others said it was also unusual for no money to be set aside for liability claims. When companies producing asbestos went bankrupt, some funds were set aside for such claims, Ditlow said.

Pam Gilbert, of Cuneo Gilbert and LaDuca LLP in Washington, said Obama’s auto task force should have looked out more for consumers and those with liability cases as it negotiated the complicated bankruptcy plans for both companies.

She notes that the administration is guaranteeing warranties issued by GM during its bankruptcy, meaning someone could get a broken exhaust pipe found to be defective fixed even while GM is in bankruptcy.

This means “they will fix the car, but if someone with a car suffers a serious injury or death because of a defection, we won’t fix the person,” Gilbert said.

Although a committee representing consumers and those with cases against the companies was involved in negotiations over Chrysler’s and GM’s bankruptcies, the group has received less attention compared to unions and those holding company debt.

That may change on Wednesday, when victims and families of victims with claims against the companies hold a press conference outside a Senate Commerce Committee hearing on GM’s bankruptcy.

Those set to attend include the family of an ABC cameraman killed when the roof of his GM Suburban caved in during an accident, as well as the families of several children who suffered broken necks and blame faulty seatbelts, according to the Center for Justice and Democracy, a New York-based consumer group.

Three hundred plaintiffs seeking $1.25 billion in damages are affected, another attorney told The Wall Street Journal’s ‘Deal Journal’ blog.

General Motors says claimants will have the opportunity to submit their claims and have them resolved “as provided by the Bankruptcy Code and other applicable law, both as to amount and priority.”

“We won’t discuss specific claims or the possible outcomes, as that will be determined by the court,” it said in a statement.

ADVERTISEMENT
But those claims must be made against the old GM company after bankruptcy, meaning people with the claims will need to stand in line with other unsecured creditors to seek compensation from the old company’s remains, Gilbert said.

The new GM that arises out of bankruptcy will not be liable for those claims.

Ditlow blamed Obama’s auto task force for the situation, which he said would ultimately add to other problems.

He cited the case of a young girl in New York left a quadriplegic from a car accident who has $500,000 in annual medical costs. That victim is likely to become a ward of the state, he said.


Ford emerging stronger

Ford, the only U.S. automaker that hasn’t received a bailout, still looks like it could emerge from the turmoil surrounding the industry in good shape.

After General Motors filed for Chapter 11 on Monday and the Obama administration made the painful choice to take a 60 percent government stake in the company, Ford said it did not expect any major disruptions to its operations as a result of the news.

It’s also benefiting from good public will in Congress and with the administration for not taking government money.

Officials involved with the auto bailout in Obama’s administration voiced confidence in Ford during a conference call on Sunday. They said the company maintains ample financial resources to ride out the storm.

“Ford has been very successful in maintaining and even growing its market share during this period and is a world-class company, and we do believe completely — and that has been the president’s decisions — the belief that this country can support three domestic successful, viable auto companies,” an administration official said during the call.

ADVERTISEMENT
The government’s stake in GM could benefit Ford, which marched to Capitol Hill arm in arm with GM and Chrysler last fall to urge Congress to offer help to its rivals. At the time, Ford CEO Alan Mulally was worried about the implications GM’s or Chrysler’s collapse could have on his company, which depends on a similar supply base.

That’s still a huge worry for Ford, but one that’s less intense given the $30 billion the government is spending on GM. Those funds should carry through to suppliers, which will also help Ford.

As a result, Ford could be helped by the infusion of government cash into its biggest domestic rival, even as it now competes with a company backed by the government.

“We look forward to working with the Obama administration to ensure that the government’s majority ownership of GM will not change the industry’s competitive dynamics and that a level playing field will be maintained,” Ford said in a statement.

Though Ford and GM enjoyed sales rebounds in May, all three domestic companies and foreign automakers selling in the U.S. face a difficult environment, an industry source said.

What would really help Ford is Congress’s completion of a “cash for clunkers” program that would provide an incentive for consumers to trade in their old cars for new, fuel-efficient vehicles. One of Ford’s best sellers is the Ford Fusion, a hybrid that gets the best fuel mileage of any sedan.