It is widely believed and reported that General Motors will be filing for bankruptcy by June 1. At midweek some thought the bankruptcy filing was not inevitable and its stock rose significantly, but by the end of the week the company drew another $4 billion from the government and the bankruptcy filing seems all but certain. On the lemon law front, we are now told that settlement checks will take 4-6 weeks to process (not 1 week as previously done) and that all repurchases are being stopped.
This bankruptcy may be worse for consumers than Chrysler. First, GM is bigger than Chrysler, and so many more people will be affected. Second, at the outset of its bankruptcy Chrysler made a mistake by failing to honor pre-bankruptcy settlements in lemon law and warranty cases. From the bankruptcy perspective this isn’t deplorable – after all all kinds of people are being hurt — but from the PR perspective it creates a problem. How do you expect car buyers to trust your warranty promises if you won’t honor lemon law settlements? But it took them a week to announce that checks will be reissued (which hasn’t yet been done), and so the uncertainty created a problem.
Chrysler also tried to sit on two chairs at the same time by seemingly having its purchaser assume existing warranties and, at the same time, staking out a legal position that all existing lemon law and warranty claims would be ‘unsecured’ (read ‘unlucky’) in bankruptcy. Ultimately this inconsistency cost them time and bad press. It remains to be seen what Chrysler’s position will ultimately be.
Looking at this small-dollar high-PR-exposure mess GM is certainly going to take notice. Having learned the lesson and the potential pitfalls, I think it is much more likely to stake out a position that it will keep fixing cars but won’t pay for any lawsuit or claim liabilities arising pre-bankruptcy.