GM to take on future product liability claims

By Bree Fowler | June 29, 2009, Monday |

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GENERAL Motors Corp has agreed to take on responsibility for future product liability claims, removing what could have been a sizable roadblock on the auto maker's path to a quick sale of its assets and emergence from Chapter 11 bankruptcy as a new company.

As part of its government-backed restructuring plan, GM wants to sell the bulk of its assets to a new company and leave behind unprofitable assets and other liabilities such as product-related lawsuits. A hearing on the proposed sale is set for tomorrow.

But in a concession to consumer groups and state officials who 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 last Friday.

Under the auto maker'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.

But under the new plan, "New GM" will not assume liability for already pending claims against the auto maker and those people will still be forced to seek damages from "Old GM."

Little recourse

"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 last Saturday.

But the group said that 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 auto maker 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, 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 auto maker 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 protection and that a key part of the goal will be a quick sale of the assets.

Under the deal brokered with US President Barack Obama's administration, the US government will get a 60-percent ownership stake in the new GM.

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.

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GM to take on future product liability claims

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