As General Motors Corp. follows Chrysler L.L.C. into bankruptcy to reinvent itself as a viable, competitive automaker, consumers may wonder whether it's wise to buy a new vehicle from either company - even if taxpayers' new ownership stake makes the purchase a patriotic act.
From a consumer viewpoint, the answer is not clear, at least until the "new Chrysler" and "new GM" emerge from bankruptcy. For Chrysler, that may happen within days, and GM also hopes to move swiftly through the Chapter 11 process.
Once the restructured companies emerge, all the legal protections that consumers rely on, including their ability to enforce warranty claims by invoking state "lemon laws," will apply to cars or trucks that the "new Chrysler" or the "new GM" sell.
But key questions remain about protections for consumers who already own Chrysler or GM vehicles, or buy them during the restructuring processes.
On Sunday, the Obama administration repeated its promise to stand behind both automakers' warranties. As General Motors neared bankruptcy, the White House said the No. 1 U.S. automaker "will continue to honor consumer warranties," and said $361 million had been set aside last week to ensure coverage "for cars sold during this restructuring period."
But consumers who buy a new Chrysler or General Motors vehicle today, or who bought vehicles before or since the companies filed for bankruptcy, may enjoy fewer protections and face some extra risks, according to consumer advocacy groups such as Consumers Union and the Center for Auto Safety.
Consumer organizations and lawyers who handle warranty disputes were busy trying to understand the consequences of yesterday's bankruptcy filing by General Motors and Chrysler's sale of assets to Fiat, its Italian competitor, approved Sunday by U.S. Bankruptcy Court Judge Arthur Gonzalez.
Some lemon-law lawyers, such as Robert Silverman of Ambler's Kimmel & Silverman, said Chrysler customers scored a victory in the final deal because it requires the new Chrysler to honor warranty and lemon-law claims for Chrysler products made during the last five years. Lemon laws are designed to protect consumers whose cars require repeated unsuccessful repairs.
Silverman, whose firm was part of an ad hoc group of lawyers who intervened on behalf of lemon-law claimants, said Chrysler lawyers initially proposed that the new company escape liability for lemon-law claims on cars sold before its emergence from bankruptcy.
"They wanted the new Chrysler to have absolutely no liability," Silverman said. "They finally realized that you can't sell cars to consumers if you don't give them an avenue for redress if things go wrong."
But some consumers, especially those with the largest claims against the bankrupt automakers, may find themselves out of luck, said Clarence Ditlow, executive director of the Center for Auto Safety.
"Consumers who used to have remedies don't have remedies anymore," Ditlow said. "The immediate impact on the consumer is that if you have a pending product-liability lawsuit, or if you're in a crash tomorrow that gives rise to a product-liability lawsuit, your claim is extinguished - you're not going to recover."
Ditlow said the Chrysler ruling would also undermine provisions that made some states' lemon laws more effective. He said the deal protected the new Chrysler from liabilities for "consequential damages," such as the cost of renting a replacement car, or from owing double or triple damages if it willfully refuses to honor lemon-law claims.
And Ditlow said the restructuring raised lots of unanswered questions for consumers such as those contemplating buying a GM Saturn or Pontiac, two brands set to be sold or eliminated.
"Where do you take the car to get it fixed if there's no brand or franchise dealer to take it to? Do you take it to the White House?" he asked.
Rik Paul, automotive editor at Consumer Reports, published by the nonprofit Consumers Union, said the new Chrysler had promised that already settled claims would be honored - despite reports that some lemon-law claimants recently received checks that bounced.
Those with unsettled claims "are going to get shortchanged in the deal - that's an unfortunate effect of the bankruptcy," Paul said.
Ironically, Ditlow said that Fiat had initially been willing to accept Chrysler's liabilities for defects or resulting damages, estimated to total $1 billion, but was dissuaded by Obama's Auto Task Force.
"They're creating a financially viable corporation, but it's not clear that it's going to be able to sell cars," Ditlow said. "If a consumer is uncertain about how trustworthy a company is, they'll buy another manufacturer's vehicle."
Contact staff writer Jeff Gelles at 215-854-2776 or jgelles@phillynews.com.
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