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May 2009 Archives
By KIMBERLY S. JOHNSON and TOM KRISHER, AP Auto Writers Kimberly S. Johnson And Tom Krisher, Ap Auto Writers
DETROIT - With the clock ticking on June 1 government deadline to restructure, General Motors Corp. worked feverishly Sunday to shore up its global businesses to clear the way for a speedy reorganization in bankruptcy court.
A majority of the Detroit automaker's unsecured bondholders announced they had accepted a deal viewed as crucial to reorganization, and Germany agreed to loan $2 billion to GM's German unit, Opel, as part of its acquisition by a Canadian auto parts supplier.
The moves don't change much for GM, but shore it up for a bankruptcy protection filing, said Rebecca Lindland, an auto analyst for the consulting firm IHS Global Insight.
"The more agreements GM has with its interests, the better the bankruptcy is going to go," she said. "It's not a game changer at all."
GM, part of American life for more than 100 years and once the country's largest employer, is expected to file for Chapter 11 bankruptcy protection before the markets open Monday. It would be the largest industrial bankruptcy in U.S. history, and the fourth-largest overall.
In addition, a GM bankruptcy would be unprecedented as the federal government would pump billions more into the company, and take a 72.5 percent interest in the automaker.
On Sunday a group of large, institutional bondholders, representing 54 percent of GM bondholders, agreed to exchange their unsecured bonds for a 10 percent stake in a newly restructured company, plus warrants to purchase a greater share later. They had balked at an earlier offer, that gave them 10 percent of the company without the warrants.
The Treasury, which has been guiding the Detroit automaker toward a rescue plan, notified the company Sunday the response was sufficient to move forward with a pre-packaged bankruptcy filing. In a previous exchange offer, the Treasury demanded participation of 90 percent of bondholders, representing unsecured debt of $24 billion.
Chief Executive Officer Fritz Henderson has scheduled a news conference Monday morning in New York. President Barack Obama is also expected to give a speech addressing the Detroit automaker's future shortly before noon. Henderson's conference is expected to follow the president's remarks.
GM already has received about $20 billion in government loans and could get $30 billion more to make it through what is expected to be a 60- to 90-day reorganization in bankruptcy court.
Beyond the bankruptcy announcement Monday, GM is expected to reveal 14 plants it intends to close and name the buyer of its Hummer division.
In Germany on Sunday, the government agreed to loan GM's Opel unit $2.1 billion, a move necessary for Magna International Inc. to acquire the company.
The Canadian auto parts supplier Magna will take a 20 percent stake in Opel and Russian-owned Sberbank will take a 35 percent, giving the two businesses a majority. GM retains 35 percent of Opel, with the remaining 10 percent going to employees.
The German funds are available to Opel immediately, as it attempts to shield itself from cuts if GM files for bankruptcy protection. Opel employs 25,000 people in Germany, nearly half of GM Europe's work force. Under the deal, four factories in Germany would stay open saving jobs.
But jobs in other European countries may not be safe, Lindland said.
"As those (German) jobs are becoming protected, other jobs in other parts of Europe are put at risk," she said.
Treasury Secretary Timothy Geithner, who was traveling to China, followed the developments closely. The Treasury on Thursday offered bondholders 10 percent of a newly formed GM's stock, plus warrants to buy 15 percent more to erase the debt. Last week, GM withdrew an offer of 10 percent equity after only 15 percent of the thousands of bondholders signed up.
The current 54 percent acceptance represents only $14.6 billion, but by lining up support in advance of a bankruptcy protection filing, GM is likely to find it easier to persuade a judge to apply terms of the sweetened offer to the rest of its unsecured debt.
It could also help the automaker get through the court process more quickly, said Robert Gordon, head of the corporate restructuring and bankruptcy group at Clark Hill PLC in Detroit.
"The more consensus you have, the more likely it is you'll be able to move through the bankruptcy process in an expeditious fashion with less resistance," Gordon said.
The company made a huge stride toward restructuring Friday when the United Auto Workers union agreed to a cost-cutting deal.
GM's fate and the federal government's intervention was scrutinized on several Sunday morning talk shows.
"I think the government auto bailout was a big mistake," said Sen. Mitch McConnell, R-Ky., on CNN's "State of the Union" program. "We could have let these companies go through the bankruptcy process much earlier...without all of the additional government money, and ended up in the same place."
In a typical Chapter 11 bankruptcy case, the company files a plan of reorganization that must be voted on by creditors. In each class of creditors, the plan would have to be approved by holders of two-thirds of the claims and a majority of the number of individual creditors who vote.
But the GM case is anything but ordinary, and it appears the company will sell some or all of its assets to a new entity that would become the new GM, rather than submit a plan to reorganize the old company.
Under a so-called Section 363 sale, the prospective buyer and seller present a fully negotiated asset purchase agreement for approval by the court.
Creditors still can lodge objections, but GM could avoid the drawn-out fights between competing creditors, such as bondholders and workers, that often occur.
Chrysler LLC, which filed for bankruptcy protection April 30, chose a similar path. A judge heard three days of testimony and arguments last week over the sale of most of Chrysler's assets to Italian carmaker Fiat Group SpA.
U.S. Judge Arthur Gonzalez is expected to approve the sale Monday, pushing Chrysler closer to its goal of a speedy exit from bankruptcy protection. But an appeal is likely from three Indiana state pension and construction funds, which invested in Chrysler debt and say the deal isn't fair. That may force Chrysler to further postpone the deal's closing.
GM's stock tumbled to the lowest price in the company's 100-year history on Friday, closing at just 75 cents after trading as low as 74 cents. In a Chapter 11 bankruptcy reorganization, the shares would become virtually worthless.
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AP Business Writer Harry R. Weber in Atlanta and Associated Press Writer Ken Thomas in Washington contributed to this report.
DETROIT (May 30) - With an almost certain bankruptcy filing days away, General Motors is beginning its reinvention, planning to retool one factory to make its smallest vehicles ever in the U.S. and rid itself of the biggest.
As GM's board began two days of meetings Friday to make a final decision on the company's fate, its main union overwhelmingly approved dramatic labor cost cuts. Germany's finance minister said a plan was approved for Canadian auto parts maker Magna International Inc. to rescue GM's European Opel unit. And a deal to sell GM's rugged but inefficient Hummer brand also appeared on the horizon.
The moves provided more clues about what a restructured GM might look like ahead of the expected Chapter 11 filing Monday. Taxpayers will eventually own nearly three-quarters of a leaner GM, with a total government commitment of nearly $50 billion.
GM has yet to confirm it will seek bankruptcy protection but scheduled a news conference for Monday in New York.
With the government's backing and nearly $20 billion in U.S. loans so far, the company has made more dramatic changes in just a few days than it has in decades.
"It's been coming to a head for a very long time," said Aaron Bragman, an analyst for the consulting firm IHS Global Insight. "But in just the past few months we've really seen steps being taken to completely and dramatically change the face of American auto manufacturing."
GM said it plans to reopen a shuttered U.S. factory to build subcompact cars. The retooled factory would be able to build 160,000 cars a year and create 1,200 jobs, offsetting some of the 21,000 that will be lost when GM closes 14 factories by the end of next year.
GM's stock tumbled to the lowest price in the company's 100-year history, closing at just 75 cents after trading as low as 74 cents. The government plan for GM revealed Thursday would make the shares virtually worthless.
The United Auto Workers' reluctant but overwhelming ratification of concessions will save GM $1.3 billion per year and bring its labor costs down to those of its Japanese competitors. The new UAW deal freezes wages, ends bonuses and eliminates some noncompetitive work rules.
The changes, plus others that will be worked out in court, will shrink GM and position it to be among the world's most competitive automakers if it can emerge from bankruptcy protection and survive the global auto sales slump, Bragman said.
"They've eliminated their legacy costs. They've already invested in new product that's coming. They have the ear of the government unlike any time in their history, and the government has said basically 'we are going to help you survive and thrive,'" Bragman said.
GM is banking on more demand for smaller cars previously shunned by Americans. The government decided earlier this month to raise fuel economy standards for the entire U.S. fleet by 2016.
The new standards were one of the biggest factors in GM's announcement to build subcompacts in the U.S. rather than in China, said a person familiar with GM's plans who spoke on condition of anonymity because of the sensitive nature of the plans.
Chrysler LLC, already in bankruptcy protection, is banking on the same thing. It wants to sell all its assets to Fiat Group SpA so the Italian automaker can start building its sophisticated small cars on this side of the ocean.
The strategy is still a big gamble. Americans have opted for bigger cars and trucks, with the exception of last summer, when gas topped $4 per gallon. GM and Chrysler hope people will spend more for better-equipped subcompacts with more luxurious interiors and performance that rivals the best luxury sedans.
Smaller costs after bankruptcy should help the companies make money even though compact cars carry far smaller profit margins than pricey SUVs. But there remains a risk that gas prices will remain low and the cars won't sell, blowing up the automakers' new business models.
The UAW deal moves billions in retiree health care costs off GM's books, giving a union-run retiree health care trust 17.5 percent ownership of a post-bankruptcy GM. The trust will take on health care costs for retirees next year. Higher health care costs alone account for a $1,500-per-car cost gap between GM and Japanese vehicles.
But just cutting labor costs won't be enough to save the company. It also has been working to streamline its engineering and design, as well as standardize many parts so they can go into multiple models.
"They've already made huge progress," said Laurie Harbour-Felax, president of a consulting company that studies competitive cost differences between automakers. "The problem is you can't see that because revenue died, because nobody's buying cars."
Copyright 2009 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.
2009-05-29 18:00:37
 Chrysler has said it will close 789 of its dealers, which is about 25 percent of the entire network. The cost of maintaining the delivery network and marketing for so many locations is not feasible now that the No. 3 US car company sells so few vehicles, in some months a mere 40 percent of what it sold last year. The shuttering of the dealers will cost the economy thousands of jobs and may hurt the firm's sales by eliminating locations that handle sales and service for parts of the current Chrysler customer base.
Now, Chrysler is hinting that if it cannot close a deal to sell a large part of its assets to Fiat, it may not be able to keep any dealers at all. Chrysler executive warns in a statement that, "If the sale to Fiat is not approved by the Bankruptcy Court, the stark reality is all 3,181 dealers will face elimination."'
The action seems improbably because Chrysler could not operate without a dealer network. The statement may even be a prod to hasten the bankruptcy court's activity and Fiat's work to finalize a deal.
But the statement is, at the very least, an indication that Chrysler's future as a viable operating company may be in jeopardy. and that the government's Chapter 11 plan is flawed.
Douglas A. McIntyre is an editor at 24/7 Wall St.
The government figures that if car loans are scarce, car buyers will stay on the sidelines. To remedy this it will inject $7 billion into GMAC Financial Services, which finances GM ( GM) and Chrysler auto loans. Based on the company's needs it could get an additional $7 billion.
Whether the government is right in its assessment of the car loan industry is hard to tell. Scores of banks also provide lending for the industry. No one knows for certain whether these banks would take up the slack if GMAC disappeared.
As the government hedges its bets to keep money flowing to car buyers, the question is whether access to credit will help revive the industry. Americans have become wary about taking on debt of any kind, even under attractive terms.
According to Bloomberg, "With GM facing possible bankruptcy following Chrysler's filing, the companies want a lender offering lower rates and flexible terms for borrowers to compete with Ford Motor Co. and Toyota Motor Corp."
Taxpayers should be concerned that the federal government is putting money into yet one more company where the return is uncertain. If the auto industry does not recover to the level of sales that it had four years ago, GMAC may have trouble making money. The only benefit to taxpayers is that they can get car loans that they do not want.
Douglas A. McIntyre is an editor at 24/7 Wall St.
Chrysler's Chapter 11 bankruptcy is already having an impact on the automaker's resale values, but those unlucky enough to be stuck with a Chrysler-made lemon are suffering even worse. Despite lemon laws intended to protect consumers, those with defective Chrysler products are getting nothing as the automaker fights through bankruptcy court. Lemon laws are intended to protect consumers from vehicles that are inherently flawed - typically defined as vehicles that can't be repaired after four attempts or have been out of service for more than 30-days during a warranty period - but Chrysler hasn't been holding up its end of the deal since its April 30th bankruptcy filing. Any lemon claims against Chrysler must now go through bankruptcy court, with several of the automaker's already cut lemon checks bouncing.
Lemon law attorney Alex Simanovsky told the Los Angeles Times he has "a stack of six or seven checks" in his drawer right now from Chrysler that have bounced. Lemon law settlements can range from as little as $2,000 all the way up to the value of a new car -- $40,000 or more in some cases.
Despite the obvious problem, Chrysler says it isn't doing anything to remedy the situation. "This is a complex process and there are a lot of issues being discussed," Chrysler spokesman Mike Palese told the LA Times. "This could be one of those issues that comes up in the course of the bankruptcy, but I can't say that we have any plans to present it at this time."
Simanovsky says Chrysler lemon owners will be "lucky to get pennies on the dollar." In some cases, consumers have already returned their Chrysler product but have received nothing back, leaving them without a car or the money to purchase a new one.
This has created a brewing consumer-confidence problem for Chrysler at exactly the wrong time. Most state lemon laws give car buyers the right to lodge complaints if a vehicle cannot be fixed. For instance, in California, if a defect cannot be repaired after four attempts (or two, if the malfunction could endanger lives), the owner can ask for a cash payment or for the automaker to buy back the vehicle. If an automaker refuses, the individual can sue.
Now, buyers who have put the lemon law to use are standing in line behind the rest of Chrysler's unsecured creditors. Chrysler has acknowledged the problem but has not asked for permission to pay the debts. For now, owners of lemon Chryslers can appeal to the bankruptcy judge, but lawyers involved with lemon law suits do not seem optimistic about the prospect of full settlements.
This means former Chrysler owners could be holding checks ranging from $2,000 cash payments to $40,000 buybacks that are at best worth pennies on the dollar and at worst worth nothing.
Posted: May. 19, 2009 11:05 a.m.
If Americans weren't already reluctant to buy from an automaker in bankruptcy protection, this won't help.
The Los Angeles Times reports, "Chrysler's bankruptcy is throwing a wrench into California's lemon law, which is intended to make it easier for consumers to get refunds for defective vehicles. As the automaker's bankruptcy grinds away, settlement checks from Chrysler to unhappy car buyers are bouncing and complaints are stymied in and out of court."
According to the Times, California's lemon law, like those of most states, allows consumers to return vehicles for a full refund under certain circumstances. In California, the manufacture is allowed four attempts to repair a defect - or two, if the defect is considered life-threatening. If the defect still exists after that, the manufacturer must buy the car back. The law also requires automakers to buy back a car that has been out of service for 30 days during its warranty period, due to a covered defect.
In California, Autoblog reports, "settlement checks for Chrysler vehicles that have already been agreed upon as defective are apparently bouncing, costing already irked consumers additional time and money." Some buyers have attempted to take the company to court, but Chrysler's bankrupt status complicates that process. Autoblog notes, "Chrysler is telling customers with lemon law claims to get in line - by filing a claim with the courts, in effect joining the automakers other unsecured creditors seeking payment. In that scenario, however, defective car owners aren't expected to see much more than 'pennies on the dollar.'"
If you're in the market for a new car, check out the U.S. News rankings of this year's best cars as well as this month's best car deals.
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Contrary to what its name suggests, the Texas Lemon Law is not a legislation that deals with the buying and selling of fruits or rule against its bright color.
It does not even come close.
Rather it involves the right of American consumers, who buy vehicles, used or brand new, cars or trucks, to return defective products and ask for a refund.
Along with the Magnuson-Moss Warranty Act and the Uniform Commercial Code, the Texas Lemon Law or Lemon Law in general protects the rights of American citizens to quality products that would give them value for their money.
In general, the Lemon Law requires car manufacturers and not car dealers to refund the money a consumer has paid for if a car is found to be a "lemon." The definition of a "lemon car" is of course different with every state depending on what the state legislation says. Usually, states differ in their definition of what a "lemon" car is and the period of warranty that is given to the consumer.
The Texas Lemon Law, for one, allows for four repair attempts or 30 days out of service for defects that are not so life-threatening. For serious product defects that pose a serious safety hazard such as problems in the steering wheel or in the brake, the Texas Lemon Law allows for only two repair attempts. If after the stated number of repair attempts, the defects have not been fixed, then a car will considered a "lemon" and therefore eligible for refund. The repair attempts under the Texas Lemon Law should of course happen within a period of two years or 24,000 miles whichever comes first for the four attempts. A period of one year or 12,000 miles is given to defects that affect the safety of the car.
Similar to other state laws, the Texas Lemon Law also requires consumers to have their cars fixed in authorized service centers and to make no unauthorized modification or alterations in the car. This is done to avoid questions that will be raised by manufacturer as they are accorded the right to investigate and challenge the claim. If the defect has been found to be caused by neglect, abuse and alterations not sanctioned by the manufacturer then no refunds will be given.
Consumers, under the Texas Lemon Law, are also asked to put their complaint into writing, stating the defects of the car. This is especially needed if it is stated in the vehicle's manual. Supporting documents should be kept in hand such as receipt of the purchase, which would state when the car was bought, repair receipts as well as diagnosis of the problem.
In addition to refunding the money, the Texas Lemon Law may also invoke the manufacturer to pay for incidental costs that the consumer has incurred due to the defect in question such as towing services and even rental of car while the "lemon" is still in the repair shop. Refunds will also not be given in full. Under the Texas Lemon Law, the purchase price will be lessened by the equivalent amount of the mileage that the owner has used the car.
While most companies have good arbitration programs which they use to cut down legal costs just in case the complaint goes to court, there are some car manufacturers who will remain firm that the defect was not there when you bought the car. If this happens, complainants are encouraged to seek legal counsel
About The Author Terry Dunn is webmaster of http://www.Lemon-Law-Explained.com - an informational resource that explains what Lemon Laws are and how they can help you.
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By TOM KRISHER,
AP
DETROIT -For General Motors Corp., the task at hand is so difficult that experts say a Chapter 11 bankruptcy filing is all but inevitable. To remake itself outside of court, GM must persuade bondholders to swap $27 billion in debt for 10 percent of its risky stock. On top of that, the automaker must work out deals with its union, announce factory closures, cut or sell brands and force hundreds of dealers out of business -- all in three weeks.
"I just don't see how it's possible, given all of the pieces," said Stephen J. Lubben, a professor at Seton Hall University School of Law who specializes in bankruptcy.
GM, which has received $15.4 billion in federal aid, faces a June 1 government deadline to complete its restructuring plan. If it can't finish in time, the company will follow Detroit competitor Chrysler LLC into bankruptcy protection.
Although company executives said last week they would still prefer to restructure out of court, experts say all GM is doing now is lining up majorities of stakeholders to make its court-supervised reorganization move more quickly.
"If we need to pursue bankruptcy, we will make sure that we do it in an expeditious fashion. The exact strategies I'm not getting into today, but we'll be ready to go if that's required," Chief Executive Fritz Henderson said last week.
The threat of bankruptcy, however, may be just a negotiating ploy to pull reluctant bondholders into the equity swap deal. In Chrysler's case, some secured debtholders resisted taking roughly 30 cents on the dollar for what they were owed, but most gave in after they were identified in court documents.
Henderson, who took over in March when the government ousted Rick Wagoner , said last week there's still time to get everything done by the deadline, although he conceded it will be difficult to meet a government requirement that 90 percent of its thousands of bondholders agree to the stock swap. The biggest obstacle to GM restructuring out of court appears to be its bondholders, who have been reluctant to sign on to the stock swap when the government and United Auto Workers union would get far more stock in exchange for debts owed by GM.
GM has proposed issuing 62 billion new shares, 100 times more than the 611 million now offered publicly.
Even though the U.S. government has agreed to back up GM and Chrysler new-car warranties, potential car buyers already view GM as if it's in bankruptcy, reflected by the company's steep revenue drop in the latest quarter, Lubben said. On Thursday, GM posted a $6 billion first-quarter loss and said its revenue dropped plunged by nearly half, largely because bankruptcy fears scared customers away from showrooms.
"I don't think anyone is buying cars from a company who is wringing their hands about a potential bankruptcy for the past year or so," he said.
Under Chapter 11, a company can stay in operation under court protection while sheds debts and unprofitable assets to emerge in a stronger financial position.
At this point, GM needs to resolve the uncertainty and get in and out of bankruptcy as quickly as possible, Lubben said.
The company is talking with the UAW and Canadian auto workers unions about concessions, including getting the UAW to take roughly 39 percent of its stock in exchange for half of the $20 billion GM must pay into a union-run trust that will take over retiree health care payments next year.
About 50 percent of the stock would go to the government for its loans. GM said last week it would need another $2.6 billion in May and $9 billion more for the rest of the year, bringing the total to $27 billion.
One percent would go to current shareholders, with bondholders getting the other 10 percent.
Bondholders are reluctant to take the deal because the government and UAW are getting far bigger stakes in the company, said Kevin Tynan, an industry analyst for Argus Research in New York.
"When you look across at what the union is getting and what the government is getting, to expect them to take 10 percent is just unrealistic," he said.
Cutting dealers also remains a huge hurdle, with GM hoping to shed 2,600 of its 6,246 dealerships by 2010.
But dealers are protected by state franchise laws, and trying to shed them outside of bankruptcy would result in either millions of dollars in payments or multiple lengthy lawsuits, Lubben said.
"That means you've got to negotiate with each one of those dealers individually."
Also, GM on Friday told its major parts suppliers that it would move up payments due on June 2 to May 28.
Company spokesman Dan Flores said it was being done to help the suppliers at a critical time, but he denied that the payments were pulled ahead of a potential June 1 bankruptcy filing.
GM has begun to temporarily close 13 assembly plants for up to 11 weeks through mid-July in an effort to control inventory. With Chrysler plants also shut down during its bankruptcy proceedings, parts suppliers will soon have no income and could go under.
It would help speed up GM's stay in bankruptcy court if it could pull together big blocks of stakeholders to agree on reducing debt or changing other stakes, said Robert Gordon, head of the corporate restructuring and bankruptcy group at the Clark Hill PLC law firm in Detroit.
During its quest for government aid, GM executives said bankruptcy would severely cut their sales, with research showing that people would shy away from GM vehicles for fear that warranties would not be backed and parts would not be available.
Tynan said the executives now can't change their story, even though they likely know that bankruptcy is inevitable.
"They're sort of morally obligated to say 'we're intent on doing this outside of bankruptcy,'" he said. "But at the end of the day, they just want the magnitude of the restructuring to get done."
Copyright 2009 The Associated Press.
Checks to buyers bounced after the automaker filed for bankruptcy, lawyers said. Chrysler will reimburse bank fees stemming from the bounced checks 'on a case by case basis.'
By Martin Zimmerman
May 16, 2009
Chrysler says it will reissue checks to frustrated customers awaiting payments stemming from lemon law complaints against the automaker. Lawyers throughout the country had reported that dozens of settlement checks had bounced in the wake of Chrysler's April 30 bankruptcy filing.
"Consistent with Chrysler's commitment to its customers, it will reissue checks to consumers that had not cleared prior to the date of the bankruptcy filing and which are not subject to the matters stayed by the bankruptcy court," the automaker said in a statement. A spokesman said payments of lemon law claims are included.
"This is welcome news," said Sergei Lemberg, a Stamford, Conn., attorney who handles lemon law cases. "I'm delighted they are doing the right thing, though it took some prompting on our part."
Lemon laws vary by state, but their general purpose is to provide a legal avenue for car buyers who are stuck with a defective vehicle that can't be repaired. If a vehicle is found to be a lemon, the laws typically require the manufacturer to repurchase the vehicle or give the buyer a cash settlement.
The buyer can sue the car company if a case can't be settled through negotiation.
After Chrysler's bankruptcy filing, settlement checks written by the automaker were bouncing.
In some cases, customers who had already returned their vehicles to Chrysler were left with neither a car nor the money to buy a new one.
Last week, representatives of several consumer groups met with members of the Obama administration's auto task force to discuss the lemon law problems and other issues surrounding the Chrysler bankruptcy.
In addition, Lemberg wrote to the U.S. bankruptcy trustee in the Chrysler case asking that a committee be formed to represent consumers.
Chrysler said it would reimburse customers for bank fees stemming from the bounced checks "on a case-by-case basis." Repayment claims can be made by calling the automaker's customer service line: (800) 992-1997.
One of Lemberg's clients, Jennifer Thom of Carthage, N.Y., said Friday that she was relieved that the lemon law logjam appears to be breaking up.
She and her husband -- who is in the Army and deployed to Afghanistan -- were awaiting a $9,000 check from Chrysler after settling a lemon law complaint over their 2007 Jeep Grand Cherokee.
"After the last two years of all the problems we've had to deal with this vehicle, we're ecstatic that they're making something positive come out of this situation," Thom said.
Chrysler's decision doesn't apply to lemon law cases that are currently in litigation, which were stayed by the bankruptcy filing.
It's possible that consumers in these cases could be treated as unsecured creditors of the company and would have to file a claim with the court for restitution, bankruptcy lawyers said.
Buyers of defective cars see settlement checks bounce and complaints stymied. To get their refunds, Bankruptcy Court must approve. Chrysler says it's not a priority.
By Martin Zimmerman
May 9, 2009
Chrysler's bankruptcy is throwing a wrench into California's lemon law, which is intended to make it easier for consumers to get refunds for defective vehicles. As the automaker's bankruptcy grinds away, settlement checks from Chrysler to unhappy car buyers are bouncing and complaints are stymied in and out of court.
Consumer advocates say the situation could erode public confidence in buying new cars at precisely the time the automakers need customers in their showrooms. And Chrysler says it has yet to do anything to resolve the issue.
"Lemon law claims are in limbo and there's a lot of uncertainty and confusion," said Rosemary Shahan, president of the Sacramento advocacy group Consumers for Auto Reliability and Safety.
"They're saying we need people to have confidence and get out there and buy cars. We couldn't agree more, but you can't ignore the problems people are experiencing."
State lemon laws, such as the one passed by California in the early 1980s, make it easier for consumers to get refunds for defective vehicles that are still covered by a manufacturer's warranty.
Under the California law, new or used vehicles that have a defect that can't be repaired after four attempts -- or two, in the case of life-threatening defects -- or that have been out of service for 30 days during the warranty period may be designated "lemons." That triggers an obligation for the manufacturer to either pay the owner a cash settlement or buy back the vehicle.
Lemon law complaints are often settled through negotiation between the buyer and the automaker. If that fails, the buyer can sue.
Since Chrysler filed for Chapter 11 bankruptcy protection April 30, financial claims incurred before the filing can be paid only if approved by the bankruptcy judge. Chrysler has not asked for permission to make payments on lemon law complaints -- and that is causing headaches for some of its customers.
Alex Simanovsky, an Atlanta attorney whose firm handles lemon law cases in California and other states, said he had "a stack of six or seven checks in my drawer right now from Chrysler that have bounced." The amounts range from $2,000 to $3,000 for clients who were accepting cash payments to as much as $40,000 in cases where Chrysler agreed to repurchase the vehicle.
"There has been no determination if these accounts are going to be unfrozen [by the Bankruptcy Court] and the checks will be good," Simanovsky said. "My feeling is they will not be."
San Diego attorney Ellen Turnage represents a client who reached a settlement with Chrysler over a 2006 Dodge Magnum with a bad suspension. The car has been returned to Chrysler, but the automaker's check bounced.
"Now he's got no car and no money, so he can't go buy a new one," Turnage said of her client. "He's stuck. We're hanging on to a glimmer of hope that at some point this will all be resolved."
Attorneys who handle lemon law cases typically work on a contingency fee basis, so they aren't getting paid either.
Chrysler said it was aware of the lemon law logjam but wouldn't say how many of its customers were affected.
The company said it had no plans at this point to ask the bankruptcy judge to approve payments to settle lemon law complaints.
"This is a complex process and there are a lot of issues being discussed," said Chrysler spokesman Mike Palese. "This could be one of those issues that comes up in the course of the bankruptcy, but I can't say that we have any plans to present it at this time."
Chrysler advises customers with pending lemon law complaints to file a proof of claim form with the Bankruptcy Court and join the ranks of the automaker's unsecured creditors.
"In that case, you'll be lucky to get pennies on the dollar," Simanovsky said.
Representatives of consumer groups met with the Obama administration's auto task force this week to discuss lemon law problems and other issues stemming from the Chrysler bankruptcy and the restructuring of General Motors Corp., which also could wind up in Bankruptcy Court.
"They were open to listening to us, but I do think that the consumer is not a focus of the auto task force at this point," said Linda Sherry of Consumer Action, a San Francisco-based consumer advocacy group. "The task force was put in place to do other things."
By DAN STRUMPF and TOM KRISHER ,
AP
NEW YORK (May 16) - A decision by troubled automaker General Motors to drop 20 percent of its dealers is due in part to an oversized network that created stiff internal competition and gave shoppers too much leverage to talk down sticker prices, hurting chances for future sales. GM's announcement Friday is more bad economic news for dealers, communities and businesses still reeling from Chrysler's similar nationwide dealer cuts a day earlier. Both automakers are scrambling to reorganize and stay alive in a severe recession that has devastated sales of cars and trucks.
Several hundred of the roughly 1,100 GM dealers already knew they were headed for closure, but most of them learned for the first time Friday. The dealerships will be eliminated when their contracts end late next year.
"We're 98 years old. We're two years from a hundred, and I don't want to go out at 99 years," said Alan Bigelow, whose family runs a Cleveland-area Chevrolet dealer that learned it was on GM's hit list.
Including Chrysler's decision Thursday to eliminate a quarter of its own, about 1,900 dealerships learned in a matter of 48 hours that they would be forced either to sell fewer brands or close altogether.
The National Automobile Dealers Association, an industry group, says the GM and Chrysler cuts combined could wipe out 100,000 jobs.
Chrysler LLC is already in bankruptcy protection, and industry analysts say General Motors Corp. is making its cuts now in preparation for a bankruptcy filing June 1. The company says it would prefer to restructure out of court.
GM declined to reveal which dealers will be eliminated. Many dealers vowed to fight, first through a 30-day company appeal process, then possibly in court.
GM's dealers are protected by state franchise laws, and the company concedes it would be easier to cut them if it were operating under federal bankruptcy protection. GM says it's trying to restructure outside of bankruptcy because of the stigma of Chapter 11.
Chrysler dealers have fewer options because the company has already filed for bankruptcy protection, and federal bankruptcy judges generally trump state law. And Chrysler said on Thursday that its cuts were final.
GM outlined a plan to cut about 40 percent of its 6,000-dealer network by the end of 2010 in hopes of getting the company back on its feet. Besides the 1,110 dealership cuts, the company will shed about 500 dealerships that market the Saturn, Hummer and Saab brands, which GM plans to phase out or sell.
And when the surviving dealers' contracts are up in late 2010, GM will cut still more by not offering renewals to about 10 percent of the dealers who are left. Dealers could stay open selling used cars or other brands, but GM and Chrysler cuts will still leave cities across the U.S. with empty buildings, vacant lots and perhaps hundreds of thousands of dollars in lost tax revenues.
FedEx letters bearing the bad news began arriving Friday morning at GM franchises around the country. The letter states that dealers had been judged on sales, customer service scores, location, condition of facilities and other criteria.
While the targeted dealers represent about 20 percent of GM's total, they make only 7 percent of its sales, the company said.
The cuts will allow the surviving dealers to expand the size of their markets, so they have a better chance of staying healthy and attracting private investment, said Mark LaNeve, GM's North American vice president of sales and marketing.
"Over time, they just can't afford to invest in their business to the degree the competition has," LaNeve said.
Toyota, for example, generally has larger and newer showrooms and service departments than GM and Chrysler dealers -- making those dealerships more attractive to potential buyers.
The Obama administration's auto task force, which is overseeing the GM and Chrysler restructuring because both have received billions of dollars from the government, was aware GM would cut dealers, LaNeve said. But he stressed the company made the decision on how many and where.
Chrysler is aiming to close its nearly 800 dealers by June 9, and those outlets may try deep discounts to clear out their remaining inventory. But in the long run, prices for cars and trucks will probably rise for customers as dealerships disappear.
"No longer will people be able to shop between three or four dealers within 15 minutes of each other for the best cutthroat price," said Aaron Bragman, an automotive industry analyst with the consulting firm IHS Global Insight.
As GM and Chrysler lost market share to Japanese and other overseas brands, they ended up with too many dealers. So did Ford Motor Co., which has managed to stay healthier than either of its Detroit siblings. In the 1980s, GM, Chrysler and Ford accounted for more than 75 percent of U.S. sales, but that dropped to 48 percent last year. GM alone held nearly 51 percent of the market in 1962, but only 22 percent last year.
Bigelow was stunned to get his termination letter. He said he believed the dealership was meeting all of GM's criteria to stay in business. He said sales had dropped in the recession -- but he didn't know of many dealers who were doing better.
Many of the dealership's 45 employees have been there for 30 years or more. He said they pledged to stay and fight the closing "until there's no more fight left."
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