SAVED BY THE “BELL” (OF BANKRUPTCY)

You might be aware of the problems that GM has had with a faulty ignition switch, which the car maker admits caused twelve deaths.  The Center for Auto Safety, however, estimates that that number could be more like 300 deaths caused.  The switch can shut off the engine of a moving vehicle, leaving the driver without power steering, brakes or air bags.  But, GM is not responsible for crashes before the auto maker’s 2009 bankruptcy, and federal bailout.

A bankruptcy, in effect, basically eliminates all of the old company’s (old GM) debts and legal liabilities, and the new company (new GM)–generally operating under the old company’s name–purchases the assets of the old company.  This “structured bankruptcy” was brokered by the Government, as part of the response to the Great Recession (4Q07-1Q09).  It saved some one million American jobs.

The Families of those killed or injured could try to re-open the bankruptcy proceedings; however, after five years, it is questionable as to whether the original bankruptcy judge would be willing to do so–even though GM knew about the problem.  The first two questions to come to mind are:  how can one or more Families out-lawyer what GM would be able to throw at them; and what would the probable success of a criminal suit again GM be?

Senator Richard Blumenthal (D-CN) has suggested another approach.  He said that the federal government should bring criminal charges against GM, since bankruptcy does not provide immunity from criminal actions.  With the leverage that the Justice Department has, it could cause GM to establish a fund for compensating victims, just as it did with Toyota.

Here’s where a large corporation can step-up, do the right thing, probably ending-up with a much lower financial responsibility and, potentially, save itself from the loss of Goodwill that GM might have had in the minds of the general public.  Time will tell.

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