June 4, 2009
The new owners of Chrysler — New Chrysler LLC and Fiat — have agreed to the request of a number of state attorneys general that the new company continue to honor consumers' rights under state "lemon laws." The decision reverses a bankruptcy judges earlier decision that exempted the new company from much of the liability.
State "Lemon Laws" provide consumers with rights and procedures to obtain a refund or a replacement vehicle if a new vehicle develops a significant problem that cant be repaired after a certain number of repair attempts.
"I commend Fiat and the Chrysler Group, LLC partners for reaching a formal consumer protection Lemon Law agreement," said Indiana Attorney General Greg Zoeller, one of the attorneys general pressing for the agreement. "While we always hope the numbers of those who are required to take advantage of the Lemon Law are low, this marks a significant 'win' for Hoosiers and for consumers across the country."
"It was a very significant question whether the new Chrysler Group LLC would be required to honor Lemon Law rights for vehicles sold or leased by the company prior to the closure of the 'Old Chrysler' through the bankruptcy court," said Iowa Attorney General Tom Miller.
The agreement was negotiated by state attorneys general and was reached with the new Chrysler Group, LLC, which will be owned by Fiat, the UAW, the U.S., and Canada. Specifically, the agreement orders that Chrysler Group, LLC will "...recognize, honor and pay liabilities under Lemon Laws for additional repairs, refunds, partial refunds (monetary damages) or replacement of a defective vehicle."
Zoeller said the states will be watching the GM bankruptcy carefully for similar issues.
Zoeller and his fellow attorneys general had success where a number of consumer groups did not. Leading national consumer groups had appealed the decision of the federal bankruptcy court overseeing the Chrysler bankruptcy proceeding, asking the court to preserve consumer protection laws and the rights of victims injured by vehicle design flaws and defects to seek compensation from Chrysler.
Lemon laws
Lemon laws provide reimbursement or replacement vehicles for owners of defective cars. Every state has a lemon law, although the terms and conditions vary by jurisdiction. In California, the manufacturer must either repurchase the vehicle or provide compensation after four unsuccessful repair attempts — or two, if the defect threatens death or serious injury — or if the car is out of service for 30 days for repair during the warranty period.
Chrysler filed for Chapter 11 bankruptcy on April 30. Lemon law obligations are technically part of the warranty between the purchaser and the seller. When an entity declares bankruptcy, it has the option of either honoring unfinished contracts or rejecting them; its decision usually depends on whether it considers the contract favorable or unfavorable. Since existing warranties are technically unfinished contracts, a bankrupt organization can choose to reject these warranties.
