Under the terms of Chrysler's sale to Fiat, the American automaker was released from all liability lawsuits consumers held against it. Now rival GM is seeking the same provision, to the dismay of its creditors.
Now that is has emerged from bankruptcy, Chrysler can no longer be held liable for injuries that may have been caused by its vehicles manufactured before June 10, 2009. Those lawsuits will be left with the old Chrysler. Victims who have already won awards will be forced to compete with the company's other unsecured creditors--including suppliers, pension funds, and stockholders--for compensation from the few assets the old Chrysler has left.
"Chrysler is saddened anytime someone is injured in one of our vehicles," said Michael Palese, a corporate communications spokesman. "Our vehicles meet or exceed federal safety standards and have excellent safety records. The reality is that automobile accidents are unpredictable and dangerous events where things sometimes happen. An injury resulting from an accident or contact with a motor vehicle is not evidence that a vehicle is defective."
Plaintiffs against GM are now fighting to ensure that GM doesn't get the same exemption. While claims against Chrysler are estimated to total about $600 million, claims against GM are double that, ringing in at approximately $1.25 billion.
A group called the Official Committee of Unsecured Creditors, which represents bondholders, suppliers, and the United Auto Workers union, has objected to GM's plan to free itself of legal liabilities from vehicle defects and other claims.
The group said the move is "a poor business and policy judgment, because it undercuts the otherwise clear message that the new company is assuming the mantle of old GM for purposes of customer service."
The court will consider the committee's objections in a hearing next Tuesday.
Both the new Chrysler and the new GM will acquire the warranties and government-recall responsibilities of their former incarnations.
Sources: CNN Money, The Detroit Free Press, The Detroit News