Story URL: http://news.medill.northwestern.edu/washington/news.aspx?id=134389
Story Retrieval Date: 5/22/2013 10:21:21 AM CST
WASHINGTON—A senior aide to President Barack Obama told Congress this week that sacrifice will be key to restructuring the domestic auto industry. But some Americans may be giving up more than others.
Consumer advocates fear that the government’s heavy stake in General Motors—and Chrysler before its sale Wednesday to Italian automaker Fiat—leave product liability and personal injury claims in jeopardy.
“That is obviously a very emotional and difficult issue for those people who are victims, and nobody takes too light not seeing them get all that they would like to get,” Ron Bloom, a member of Obama’s automobile task force, told the Senate Banking Committee on Wednesday. “Unfortunately, if one looks at the way bankruptcies are conducted, bankruptcies are about taking liabilities that companies can no longer afford and finding a way to discharge them in an orderly way.”
GM filed for bankruptcy last week and is set to collect an additional $30.1 billion in federal funds in addition to the $19.4 billion the company already received to save American jobs and preserve a crucial manufacturing sector.
On Wednesday, five consumer groups that include the Consumer Federation of America and Public Citizen sent a letter to Obama criticizing his task force’s handpicking of which elements of the ailing car companies to save and which to leave by the wayside.
“We are writing to bring your attention to the fact that in the Treasury Department’s rush to drive the Chrysler and GM bankruptcy process forward, the safety of the American public is being compromised by the existence of a very dangerous ‘ticking time bomb’ bankruptcy loophole,” the letter read.
Their concern is that consumers will have no recourse to file liability claims or receive compensation from Chrysler and GM for the damages caused by their products.
Representatives from Consumers Union, the nonprofit publisher of Consumer Reports, expressed similar concerns in a recent statement to Treasury Secretary Timothy Geithner’s auto industry adviser.
“If the newly reorganized companies are restructured ‘free and clear’ of these suits, it would mean that consumers…would be left without recourse,” the letter read. “That status would put them at the end of the line to be repaid from the meager assets left over once secured creditors were taken care of.”
Forty-seven percent of all death and injury claims filed against automakers involve Chrysler and GM vehicles, according to the National Highway Transportation Safety Administration. These claims have accounted for 15,284 casualties connected to problems with GM vehicles and 3,497 with Chrysler cars over the past five years.
What’s more, if consumers can no longer file claims against Chrysler and GM, critical death and injury data that car manufacturers and the federal government use to identify and correct defaults will be lost, said Joanne Doroshow, executive director of the Center for Justice & Democracy, a New York-based consumer group that was among those that sent the letter to Obama.
Consumer confidence, an essential part of the domestic auto industry, could also fall. Consumers Union pointed out that if consumers are unable to obtain relief for legal claims, that a restructured GM or Chrysler could be faced with negative press that would discourage consumers from purchasing their vehicles.
Bloom said that existing liability claims are largely a matter for the old Chrysler or GM to deal with and that “it is not likely that they will be fully recompensed.” Since GM and Chrysler were largely self-insured, there were no trusts or insurance policies set aside for liability claims in case of bankruptcy.
“That is clearly a terrible thing for those individuals, but there are a lot of people that General Motors made promises to that it can’t honor,” Bloom said, adding that the only alternative would be for the government to write endless checks to deal with the situation.
But Bloom assured the Senate Banking Committee that the government would not offer additional funding to GM or Chrysler.
“We spent a tremendous amount of time diligencing these companies and we’ve worked very hard to assure ourselves that this is their last visit,” Bloom said.
Doroshow said it is the responsibility of Congress and the administration to do something to help victims, for instance, by creating a compensation fund for the new Chrysler or GM or purchasing an insurance policy to cover consumer claims.
For accident victim Jeremy Warriner of Indianapolis, it is important that a potential solution be forward-looking. “It’s not just people like myself who had a pending lawsuit against Chrysler; it’s that there are now 40 million vehicles on the road that could cause an injury in the future,” he said.
In 2005 Warriner’s Jeep Wrangler was hit by a car driven by a 16-year-old who drove through a stop sign. The Wrangler came to rest after it slid off the road and hit a pole, but a fire erupted and Warriner suffered third and forth degree burn to his legs, which were amputated.
“The fire was caused by Chrysler because they used a part that was not safe to hold a flammable liquid inside an engine,” Warriner said of the plastic break fluid container that was shattered during the crash.
After 38 surgeries, Warriner’s medical bills total more than $1 million and his insurance is almost maxed out. He sued Chrysler, but his trial was canceled when the company filed for bankruptcy on April 30.
Warriner is now living on disability, which he finds ironic. “If these injuries are not being reported … then what we are doing is increasing the number of people living off of government assistance programs,” he said.
“At some point, Chrysler and GM still need to be involved,” he added.
Despite the auto task force’s desire to stay out of day-to-day business decision-making at GM, the government now holds an unprecedented 60 percent equity share in the company. The government had an 8 percent share in Chrysler.
“It’s not a choice,” Warriner said. “They are now involved. They’ve got to do right by the people because it’s our money that’s been used to create this situation.”
Warriner worries that taxpayer money is being used to infringe upon Americans’ 7th Amendment right to a fair trial. “Regardless of the politics, this affects every American,” he said.