The GM Banruptcy Just Keeps Helping GM

Like a GM automobile, claims against the company arising from its faulty ignition switches might unexpectedly stop working.

While GM is talking a big game about compensating those who suffered damages due to the company's defective cars, GM's definition of "damages" is cleverly designed to save the company billions.

As you might remember, GM filed for bankruptcy about five years ago. "Old GM" sold all of its valuable assets to "New GM" — which was a federally backed company. All of Old GM's bad assets and liabilities were handled through the chapter 11 bankruptcy process. In simplified terms, that means that anybody who had a beef with Old GM needed to settle their business with the company in 2009.

That's bad news for some people who bought faulty GM cars. New GM agreed to assume all liabilities from Old GM vehicles that resulted from "accidents involving Old GM vehicles causing personal injury, loss of life or property damage," according to the Wall Street Journal. That will still cost GM a lot of money: bankruptcy doesn't absolve you from killing people.

But New GM does not want to cover economic loss arising from simply buying a defective car that is now worth thousands less than it should be. Those liabilities were not assumed by New GM after the bankruptcy process. You might remember that when Toyotas starting accelerating on their own, the company ended up paying $1.1 billion just in economic damages, so we're talking about a huge potential savings for GM.

And really, GM would have a slam-dunk legal argument for avoiding those liabilities.... except for the fact that it seemingly knew about the problem and didn't tell anybody for years. Say it with me everybody: It's not the crime, IT'S THE COVER-UP. If GM knew about the potential liability before bankruptcy and kept it hidden through the process, the bankruptcy court can reopen the proceedings and force GM to pay.

That will be a question for New York Bankruptcy Judge Robert Gerber. From the Wall Street Journal:

Barring a settlement, a threshold question for Judge Gerber, say bankruptcy experts, is whether plaintiffs can show that senior executives at the company were in a position to go public with the ignition-switch problems, but chose not to.

Plaintiffs will likely point to key sections in the 315-page internal report released this month that found that certain GM employees had known for a decade that ignition-switch failures led to serious injuries.

The report didn't find evidence of a wide-scale cover-up, or pin blame on any senior executives. Rather, the report cited a pattern of neglect and inaction that kept GM from addressing the vehicle defect.

If the system seems rigged to help large corporations at the expense of people who own a used Chevy, it is.