By on November 6, 2014

GM First Day as a Public Company Celebration

Remember all of those bankruptcy protections sought by General Motors that were made against any and all future lawsuits linked to ignition-related accidents and fatalities that occurred prior to the automaker’s exit from said bankruptcy in July 2009? Guess how much it would owe if the shield collapsed?

Bloomberg reports GM could be on the hook for as much as $2 billion if federal bankruptcy judge Robert Gerber of Manhattan rules in favor of the plaintiffs of a class action aimed at bringing said shield down.

The suit calls for damages to be paid due to lost resale value as a result of the February 2014 ignition switch recall, citing alleged fraud committed by the company during the proceedings, claiming executives knew of the issues affecting a handful of models made between 2003 and 2011. Bankruptcy attorney Chip Bowles explains:

In bankruptcy, you have to disclose your assets and liabilities. Those are basic requirements — and GM didn’t do it. It would be very easy for Gerber to say, “Guess what? If you know someone is a creditor you have to give them notice. If you fail to do so, they aren’t constitutionally bound by my orders.”

The collapse would only be the beginning: Aside from the 2.2 million vehicles that could be affected, another 9.6 million vehicles suffering similar ignition woes — 90 percent of which were made prior to the July 2009 reorganization — would likely see their owners wanting a part of GM.

A ruling could be made as early as late February of 2015.

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18 Comments on “General Motors Stands To Lose $2B If Bankruptcy Protections Collapse...”


  • avatar
    Pch101

    As part of the purchase agreement, the new GM agreed to assume responsibility for vehicles assembled prior to the bankruptcy **by an entirely different company.**

    That is not the norm. This is not a matter of a “shield” but of the new GM taking on liability above and beyond the norm.

    Under normal circumstances, a new firm would have no responsibility at all for the activities previously undertaken by a different entity. But the government did not want ordinary owners of GM cars to have no recourse at all, hence the deal.

    The attorneys for the plaintiffs know this. They are attempting to pursue the new company for pre-BK claims because they know that the liable party — the old GM, aka Motors Liquidation — has no money. Since there is no deep pocket, they are attempting to find one.

    • 0 avatar
      APaGttH

      Correct.

      It is GM’s fault for not painting a sympathetic picture for itself.

      Ask the people who built houses on toxic waste dumps, or certain people slowly dying from asbestos exposure on how they feel about, “bankruptcy,” law.

      Chemical companies and mining firms get to use bankruptcy as a shield, and do “feel good,” activity like contribute to a pool while admitting no wrong doing, that doesn’t come close to compensating aggrieved parties.

      GM honoring warranties post BK, especially on dead brands was already going above and beyond (ditto for Chrysler)

      • 0 avatar
        Charliej

        APaGttH, you are correct about how chemical companies use bankruptcy laws to shield themselves from liability. In 1966, I worked as an analytical chemist for Stauffer Chemical Co. at their Cold Creek Organic Plant in South Alabama. We made a very effective insecticide. It had one bad side effect. It killed people as readily as it killed insects. It was illegal to sell it in the US. So we shipped it to where it could be sold. The site of the plant is now a superfund clean up site. It is estimated that it will cost 122 million dollars to get the chemicals out of the ground. They need to come out of the ground because they leach into Cold Creek, about a half mile from where it flows into the Mobile River. This is thirty miles upstream from a metro area of about a half million people. Stauffer is long gone, but the company that succeeded them is still around and says that it has no responsibility for the clean up. This area of South Alabama is around the town of Axis. Birth defects are very high for the people in the area. Farmers lose livestock to strange diseases. I left the company after a fairly short time. Of the people that I knew there, most are dead of various cancers. It turns out that long term exposue to small amounts of toxic chemicals can cause a horrible end to life. I have no doubt that I would not be enjoying retirement if I had worked there for a long period. And responsibility for all the pollution, and all the deaths were erased by bankruptcy.

    • 0 avatar
      thornmark

      And yet the new GM is allowed to carry forward the losses of old GM – something a real bankruptcy doesn’t normally allow.

      That peculiar feature was stealthily inserted to make GM stock attractive to investors in the new company – as analysts determined that provision might be worth $45 billion dollars – meaning GM will probably not pay taxes on profits for 20 years. Goosing the stock in that way made gov losses look lower in the short term but, in aggregate, larger as GM pays no taxes on profits.

  • avatar
    Rday

    But it wasn’t a regular bankruptcy. the UAW did not take a haircut. Neither did the corrupt management. Just the shareholders and bond holders….and customers that had bought GM cars. So the whole deal was a corrupt and smelly deal. The employees conspired to bypass the regular rules for bankruptcy. So the customers and shareholders are just wanting to get their fair share…and this is the only way to get it. GM deserves to be punished for all of their greed from the past and evidently the greed/corruption that still is going on. This is what attorneys and courts are for.

    • 0 avatar
      Pch101

      “the UAW did not take a haircut”

      Your Google must be broken.

    • 0 avatar
      stuki

      “GM deserves to be punished for all of their greed from the past and evidently the greed/corruption that still is going on. This is what attorneys and courts are for.”

      Say what you want about GM, but as a societal problem they rank so far below “attorneys and courts” as to be entirely irrelevant. Just buy a different car if you don’t like them. Now try that with your “attorneys and courts” as see how it goes.

  • avatar
    Whittaker

    If the new GM is a completely different entity from the old bankrupt GM then why are they allowed to use old GM losses to avoid paying taxes on new GM profits.
    This bankruptcy was anything but normal.

    • 0 avatar
      highdesertcat

      Yeah, I thought Shrub got some really bad advice when he provided for the 90-day bailout of GM and Chrysler.

      Regardless, this caused GM to double down on a strategy to entice O’ to further bailout and nationalize the dead automaker at taxpayer expense.

      At least we, the people, got rid of Chrysler’s carcass. The same should have been done for GM — give it away, cut our losses.

      But no, we’re still stuck with the Albatross GM hanging around our necks every time someone gets killed because of some other GM cover-up. Now even more sh!t is coming out. Time will tell, bailing out GM was the wrong thing to do.

      I am surprised that the GM-fan club isn’t loudly defending their automaker with comments of praise and glory.

    • 0 avatar

      “If the new GM is a completely different entity from the old bankrupt GM then why are they allowed to use old GM losses to avoid paying taxes on new GM profits.”

      The tax breaks were in exchange for not dumping pension obligations on taxpayers, that GM could legally do in a bankruptcy. $20B in unfunded pension obligations vs $14B in tax breaks..You do the math. The tax breaks were also meant to make the stock more attractive. Uncle Sam owning 60% of the stock stood to gain the most. But you are right, the bankruptcy was anything but normal. It was a payback to the unions for helping win Ohio in 2008 and guaranteeing a win in 2012.

  • avatar
    burgersandbeer

    You managed subject-verb disagreement and inconsistent tense in the headline. I think you wanted “General Motors Stands To Lose $2B If Bankruptcy Protections Are Lost”. I’m not even going to attempt to edit the headache-inducing opening sentence.

    I realize TTAC lacks editorial resources and 90% of the B&B don’t care, but is getting the headline right that much to ask?

    • 0 avatar
      Pch101

      My guess is that the author is a Brit. In British English, it is common for collective nouns to be pluralized.

      US English: Coldplay is playing at Madison Square Garden.
      British English: Coldplay are playing at Wembley.

  • avatar
    mitchw

    Maybe we’ll see a settlement between the plaintiffs and GM, if GM doesn’t want to risk a legal judgement on their bankruptcy. Going to court is leverage for those looking to get money out of New GM.

    • 0 avatar
      Pch101

      The risk of that is about zero. This is a non-issue.

      This is simply an effort made by the tort lawyers to get the new GM to shell out money to those who are owed money by the old GM. It’s a public pressure tactic, not a legal argument.


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