June 28, 2009 / 9:50 PM / 10 years ago

GM accepts product liability in bid to clear sale

DETROIT (Reuters) - General Motors Corp GMGMQ.PK has agreed to accept liability for future product defects as one of several concessions offered in a bid to win court approval for a quick sale from bankruptcy.

The U.S. flag flies at the Burt GM auto dealer in Denver June 1, 2009. RTEUTERS/Rick Wilking

In addition, GM said it would change the terms of its proposed asset sale to address objections raised by over 20 suppliers and was working to resolve a question over the future of a joint-venture plant with Toyota Motor Corp (7203.T).

The statements by GM, which came in filings with a New York bankruptcy court on Friday, show how the automaker and Obama administration officials have worked to counter some of the more contentious issues raised by the company’s bankruptcy filing earlier this month.

A group of nine state attorneys general, including Ohio and Connecticut, had objected to the GM reorganization brokered by the Obama administration because it would have robbed consumers of protections against product defects under state laws.

In response, GM said it would continue to pay “lemon law” claims so that consumers would be entitled to a refund or replacement for defective vehicles.

GM also said that the reorganized company, which will be effectively nationalized with a $50 billion investment from the U.S. Treasury, would assume liability for future product defect claims in a change negotiated with government officials.

“The purchaser will expressly assume all product liability claims arising from accidents or other ... incidents arising from the operation of GM vehicles subject to the closing,” GM said in its court filing.

‘CONSUMER VICTIMS’ OBJECT

Under the GM reorganization plan, a new company would be created to buy the automaker’s best assets out of bankruptcy in a deal scheduled to close by August.

The new GM would be 60-percent owned by the U.S. government, 17.5 percent by the United Auto Workers union and 11.7 percent by the governments of Canada and the province of Ontario.

A group representing about 300 Americans with lawsuits against GM for alleged product defects has objected to the reorganization since those injury and wrongful-death claims would have to be paid out from the sale of GM’s mostly worthless assets.

The group, which calls itself the Ad Hoc Committee of Consumer Victims of General Motors, said in a bankruptcy court filing earlier this month the automaker’s insurance would only cover product liability claims of up to $35 million per claim.

It said that amount would not be sufficient to cover the claims of almost any of the lawsuits since many of the cases involved “devastating injuries” from alleged vehicle defects.

In an attempt to address a separate objection, GM said U.S. officials had changed the terms of the reorganization to make it clear that tooling suppliers and others would still have a claim against the new company for work under way.

GM also said it would try to work out a “consensual” agreement with Toyota to address a joint-venture factory it operates with Toyota in California.

The future of the 26-year-old GM-Toyota joint-venture plant in Fremont, California, commonly known by its acronym NUMMI for the New United Motor Manufacturing Inc, has been uncertain for the past month.

GM is scrapping the Pontiac Vibe it builds there and has not been able to find a new vehicle to produce jointly with Toyota, a senior executive said last week.

Last week, Toyota objected to GM’s reorganization plan and asked the bankruptcy court to prevent the company from transferring its 50-percent ownership in the NUMMI joint venture to the newly nationalized automaker.

Toyota said in its filing that GM had not provided any “assurance” about its plans for the joint-venture since filing for bankruptcy.

The plant, which is represented by the United Auto Workers union, also makes the Toyota Corolla sedan and the Toyota Tacoma compact pickup truck.

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