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GM, Chrysler Bankruptcy Plans Unfair to Accident Victims?

As Chrysler emerges from bankruptcy and GM prepares to swallow the same very bitter pro-union pill its rival had to consume, a very interesting phenomenon is developing. Suddenly journalists and lawyers who had no problem with the destruction of bondholders' assets are complaining that potential tort victims are "unfairly" being targeted by the bankruptcy. See, for example, here and here.

Wait a minute. On the one hand, it is recognized that many people lost much (in some cases all) of their savings when their bonds, supposed to have priority over union claims, suddenly lost that priority as a result of government intervention. [This Washington Times piece gives several examples.] Why should claims that do not necessarily even validly exist (they have not yet been adjudicated in most instances; even when plaintiffs win automobile product liability suits their or others' misbehavior is often the chief cause of their injury) be treated more preferentially than explicit and preferential promises to pay?

When one is injured by a product produced by an insolvent, bankrupted, or liquidated firm, one may well have no recourse -- this is "unfair" only in the general sense that life is unfair. According to Clarence Ditlow, the executive director of the Center for Auto Safety, "the [bankruptcy] plans are unusual in that they would prevent anyone from bringing a future liability claim against GM or Chrysler if a car already purchased from either company is defective and results in an accident causing death or serious injury." Mr. Ditlow further stated that "it was...unusual for no money to be set aside for liability claims." Unusual perhaps, unheard of not at all; and what is NOT unusual about these nationalizations-cum-bankruptcies?

As soon as government became the main shareholder of the new corporations, we could guess it would not play by "usual" rules. Those Chrysler promisees who explicitly relied on pre-existing law have already seen their hopes dashed. Again all (alleged tort victims and real contract victims) are reminded of the value of first-party insurance.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.