GM Car Owners Face Low Payout If Told to Sue Bankruptcy Vestige

May 24, 2014 12:01 am ET

May 24 (Bloomberg) -- General Motors Co. customers suing the automaker for as much as $10 billion over losses in value of their recalled cars would face meager payments if told to claim the money from its predecessor, based on financial data filed in court.

So-called old GM had only $1.1 billion as of March 31 to pay existing claims of $32 billion, it reported yesterday in U.S. Bankruptcy Court in Manhattan. The company that GM split from in 2009 has been liquidating assets to pay creditors, including accident victims. So far they’ve received new GM stock and warrants at an estimated rate of 30 cents for each dollar claimed, according to court records.

GM, after recalling 2.59 million cars with faulty ignition switches, is fighting at least 79 lawsuits over economic losses. While accepting responsibility for injuries, it has asked a bankruptcy judge to rule that it isn’t responsible for the price declines in cars made by old GM.

U.S. Bankruptcy Judge Robert Gerber, who handled the automaker’s restructuring and sale of shares to the U.S., ruled in 2009 that new GM would be free from claims for damages and other liabilities. As recently as 2012, he told a group of the carmaker’s customers to take their warranty demands to the bankrupt company, where they belonged.

Car owners say Gerber’s ruling doesn’t apply to them, because GM deceived him about the extent of its ignition switch liabilities. A customer group that sued GM in Gerber’s court said the company knew of switch defects by 2004 and didn’t fix them, even though the estimated cost was just $12 a car.

GM has linked the defect to at least 13 deaths.

Gerber has stopped the economic loss suits until at least Sept. 1 while he reviews the dispute.

Old GM, acting through a trust set up to pay creditors, distributed $1.2 billion in the year through March 31, according to its quarterly report filed in court.

The bankruptcy is In re Motors Liquidation Co., 09- bk-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).