GM Looks in the Face of Liability and Laughs

June 29th, 2009

chevrolet_lumina_burnedOn this Monday morning, I want to open the week with a quote from a favorite movie:

A new car built by my company leaves somewhere traveling at 60 mph. The rear differential locks up. The car crashes and burns with everyone trapped inside. Now, should we initiate a recall? Take the number of vehicles in the field, A, multiply by the probable rate of failure, B, multiply by the average out-of-court settlement, CA times B times C equals X. If X is less than the cost of a recall, we don’t do one.

That’s from Fight Club and is pretty accurate, considering the state of auto companies today. If it’s cheaper for a company to just pay off people hurt by its products, why issue a recall and face potentially damaging PR? Those liability payments are costs car companies have to count on.

Unless of course you’re the “new GM.”

As part of GM’s bankruptcy filing, it’s possible it will no longer be liable for injuries or deaths caused by vehicles built by the “old GM.”  Our friends at Autoblog reported that GM may be reconsidering, but Chrysler set a precedent earlier this month when they emerged from bankruptcy free from such liabilities.

So if you’re driving around in an ’06 Cherokee or a ’94 Lumina, and it suddenly bursts into flames, the folks at Chrysler can just let out a sigh of relief knowing the third-degree burns their vehicle gave you are not their responsibility. Awesome, huh?

News like this doesn’t exactly instill the kind of trust GM and Chrysler so desperately need. Why are we supposed to believe that the “new” GM will be run any differently than the old, considering most of the top execs are still in place? At least Chrysler has the advantage of an all-new CEO and top management team.

I don’t think the world’s auto buyers will just forgive and forget a century of mediocre vehicles and start buying cars from a post-bankruptcy Chrysler or GM. Especially if they keep showing signs of continuing in their old ways, only with a brand new set of government-issued credit cards.

A company can’t hide in the shroud of bankruptcy and keep screwing its customers. Eventually we’re going to catch on.

Would you buy a pre-owned GM or Chrysler if you knew the company wouldn’t assume liability if it malfunctioned?

-tgriffith

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  1. Norm
    July 1st, 2009 at 14:26 | #1

    This is a terribly unfortunate byproduct of US Bankruptcy law. The law is intended to give companies a fair chance at recovery and in order to do that it wipes most liabilities off the books, including injury lawsuits. Injured litigants do have an option, however: they can pursue the individual suppliers of parts, who are still very much in business. They in turn will have considerable leverage against the ‘new GM’ since they are still working together. Example: you can sue the brake lining company when your vehicle fails to stop in time. The brake company threatens to stop working with the ‘new GM’ if they don’t cover the losses. As for warranty coverage, most people will find they have better coverage if they purchase an aftermarket (insurance provider, for example) warranty. The cost is comparable, and you can have your vehicle serviced practically anywhere. This is simply another negotiable item with the Dealer.

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