Chrysler bankruptcy leaves injured consumers without recourse

The Chrysler bankruptcy is leaving some consumers falling through the cracks. That’s the complaint of a number of consumer groups who filed an objection to the Chrysler sale this week.

According to the filing, current Chrysler owners may not be able to sue Chrysler in the future if claims arise due to product defects, including lemon law claims, class action claims such as those for defective engines, and personal injury claims. Even those who currently have claims against Chrysler may be left scrambling for pennies on the dollar or less says Clarence Ditlow, executive director of the Center for Auto Safety, which filed the objection along with several other consumer groups.

In the bankruptcy filing, these consumers are being considered “unsecured creditors,” he says. That puts them at the end in line to be repaid from the meager assets left over after the new Chrysler buys the bulk of Chrysler’s current assets. The “new Chrysler” will be partly owned by Fiat, the union employees pension fund, and the U.S. and Canadian governments.

According to the current bankruptcy filing, the “new Chrysler” is set to emerge from the process “free and clear of all other encumbrances,” says Scott Nealey of Lieff, Cabraser, Heimann, and Bernstein, LLP, an attorney who represents consumers with claims against Chrysler. “Since claims under state law for defective products are not included in those items Chrysler says it will assume, they are by definition excluded, and the sale of the assets Chrysler proposes would be ‘free and clear’ of any liability,” says Nealey.

“The sale of Chrysler as now proposed immunizes the new Chrysler from any liability for existing lawsuits and claims, even if a judgment has already been awarded,” says Larry Coben, who represents personal injury victims in the bankruptcy proceedings. He adds that the available funds will be dwarfed by the number of claims.

“The old Chrysler is just going to become a shell of worthless assets, and all the creditors are going to be scrambling for pennies on the dollar, and I mean less than 10 cents on the dollar. Maybe no cents on the dollar,” says Ditlow.

Asked about the claims, Chrysler spokesman Michael Palese says all litigation against the company is stayed by the bankruptcy process. “A lot of these issues will be addressed in court. Many of those decisions have not been made. They are all important decisions that affect many, many people’s lives and we intend to follow the law and abide by the decisions of the bankruptcy court.”

Chrysler is the smallest volume seller of the domestic automakers. Now with General Motors CEO Fritz Henderson reportedly saying bankruptcy at his company is “probable,” the number of consumers left at the side of the road could multiply.

We will continue to monitor this fast-moving story, reporting here in the Cars blog and also updating advice and news on the Auto Crisis hub.

—Eric Evarts

Comments

[Stratojet]

Like a lot of US corporations, Chrysler has been sued to death for so-called product defects. You see, I work for the Auto industry, and I can attest that a lot of legal actions are simply frivolous. The best example that comes to mind is the allegation that GM trucks were catching fire when hit on the side. It was soon found that this whole thing was a setup orchestrated by insurance companies and scumbag lawyers.

The big three still have to pay for litigations which date from a long time ago, at a time when those companies did not have the medical expertise to evaluate the risks involved at that time.

Audi almost went out of business with allegations of sudden accelerations, which have proven to be dead false. In the same vein, many customers know how to build a file to get their cars bought back by the companies under Lemon laws, where in fact, in many cases, nothing wrong was found defective by the engineers.

I am telling you that some customers may have legitimate concerns; at the same time, a huge number simply don't and are just exploiting the system.

[SEREN]

Fiat is strange bedfellow for Chrysler and has major debt of its own right now. If it purchases Chrysler, which it most assuredly will - it plans on 'consolidation' of assets (translation big big layoffs and plant closings all over europe).....;(
The positive side of this event for Americans ?
- the saving of hundreds of dealerships/jobs in America
- Cute tiny very fuel efficient european cars will be sold here in 2010
- Toyota/Honda/Hyundai will have to offer even lower prices to compete on their very good products :)
- GM will even have to offer SUPER deals at prob below cost for at least a year, if it wishes to ever start to again compete

[everett whitney]

TO: Seren - "Fiat models here in 2010..?"

NO Chance!

To obtain the requisite federal certifications, including EPA/Pollution for whichever Model Year it finally becomes, those very-costly crash testing events and establishing among the very-reduced dealership chain the all-new staff, mechanics, assortment w/ parts, training, metric tools/nomenclature .... it will MUCH later!

Besides - who's to say that the horrible experiences of FIAT's last venture into the U.S. vehicle market have yet been eradictated?

All this MAY go down the tubes in spite of "injecting" untold Billions into something that might have been better solved as a full Chapter 7 liquidation in the first place, prior to a single penny of tax payer money having been squandered !

everett

[Mike Palmer]

Can someone explain the photo that appears with this post? What is the woman looking at? In looking backwards, is she failing to notice that she's about to fall into the proverbial crack mentioned in the first sentence? Has the car been in a crash? Is it a Chrysler?