Government Motors Not Responsible for General Motors Products

Government Motors Not Responsible for General Motors Products
Posted by Karen De Coster on September 3, 2011 04:35 AM

We knew that post-bailout, GM would face successor liability cases in the very near future, and GM's treatment of its customers does not disappoint.

General Motors Co ( GM.N) is seeking to dismiss a lawsuit over a suspension problem on more than 400,000 Chevrolet Impalas from the 2007 and 2008 model years, saying it should not be responsible for repairs because the flaw predated its bankruptcy.

...The current company, called "New GM," said it did not assume responsibility under the reorganization to fix the Impala problem, but only to make repairs "subject to conditions and limitations" in express written warranties.

Here are the court decisions regarding Chrysler and GM.

The Second Circuit authorized the § 363 sale to New Chrysler of Old Chrysler's assets free and clear of any existing tort liability (including asbestos claims), but declined to delineate the scope of the bankruptcy court's authority to extinguish future claims "until such time as we are presented with an actual claim for injury that is caused by Old Chrysler, that occurs after the Sale, and that is cognizable under state successor liability law." In re Chrysler, LLC, 576 F.3d 108, 126-27 (2d Cir. 2009).

In the case of GM, the S.D.N.Y. Bankruptcy Court was bound by the Second Circuit's decision in the Chrysler appeal, and permitted "GM's assets to pass to the purchaser free and clear of successor liability claims." In reGeneral Motors Corp., 407 B.R. 463, 505 (Bankr. S.D.N.Y. 2009).

For those folks who insisted on the "Buy American" paradigm, I do not feel their pain for buying junk from a financially insolvent bank masquerading as an auto manufacturer. Here are two articles I co-wrote (#1 here and #2 here), with a fellow analyst and friend, about the demise and financial insolvency of Government Motors.

I remember very clearly the "backlash" against the bailouts on the part of those folks here in Detroit who are not pro-union. The union supporters, of course, were supremely happy about the benefit-the-union bailouts while the white collar folks (who are typically Republican leaning and have animosity toward the UAW) showed their indignation by ... buying Ford cars.

Yes, the post-bailout, anti-union attitude in and around Detroit was to go out and buy a Ford. Since everyone in southeast Michigan has family and friends in the auto industry, so many friends and co-workers were telling me they were being pressured by friends and family to "buy American," so they did. It amazes me that folks allow others to pressure their decision for such a high-dollar purchase. The default purchase, then, was Ford. Certainly, no one talks about the subsidies to Ford that helped underwrite its environmentally correct program.

On an anecdotal note, one story involves a co-worker who bought a Ford Escape a bit less than two years ago, because of pressure on him to "support Detroit" (his other family car is a Honda). Last week he told me that he has had the Escape back at the dealer 14 times in less than 2 years, for issues including transmission, steering/front end, air conditioning, sensors, electronics, oil leaks, etc. Time and time again, the dealer could not fix the issues until his 2nd or 3rd trip. He switched dealers and had the same problems. The steering took 4 trips to get it fixed. He was told, the first 3 times, "that's just the way the car is made." And this is a car with less than 30k miles. Why do I hear so many nightmare stories from folks about their new 'American' purchases and the ensuing dealer experience?

My experience with my first Honda, a 2005 I bought in 2010 from a dealer and with a certified warranty, is very different. The battery pooped out and left me stranded in week 2 of my ownership. The service manager at my local dealer said he had never witnessed a battery failure on a Honda Element, and he had been the service manager since they first rolled off the line. In light of that, and in spite of the fact that the certified warranty does not cover the battery, Honda replaced my battery free of charge and handed me a check for the towing bill. In fact, I had bought the vehicle at a Honda dealer 60 miles away, and that dealership worked with a dealer right near my house to get this done, and the two dealerships settled up the issue and I left with no charges and a check for my towing expense. Honda wanted to keep this customer, and it will.

So long ago, the Detroit auto industry embraced union politics and forgot all about service and the customer. My friends razz me for my Honda (yes, that's an attitude here and people don't want to let you forget), but I won't be buying American junk. Follow me on Twitter @karendecoster.