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June 3, 2009

The New Chrysler Group LLC Will Honor "Lemon Law" Obligations

Bankruptcy Court approves agreement with State Attorneys General.

Des Moines. Fiat and the new “Chrysler Group LLC” have agreed to honor the “Lemon Law” rights of Chrysler buyers when the new company takes control of the U.S. auto maker, Attorney General Tom Miller said Wednesday. Miller’s Office helped lead a group of states that reached agreement with the new Chrysler Group LLC, which will be owned by Fiat, the UAW, the U.S., and Canada.

“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 can’t be repaired after a certain number of repair attempts,” Miller said.

“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,” Miller said.

“Lemon Law rights vary from state to state,” Miller said, “but they generally apply for several years or up to certain mileage limits for new vehicles purchased or leased by consumers.” [See description of Iowa’s Lemon Law below, for example.]

Fiat negotiated with a group of state attorneys general and agreed to honor all the rights consumers had under the “Old Chrysler” to seek and obtain a refund or replacement vehicle if their vehicle has a significant or recurring problem. The agreement is contained in writing in the Bankruptcy Court judge’s order dated Monday, June 1.   [Go to Bankruptcy Court Order, and see esp. paragraph 19, p. 31.]

“I commend Fiat and the other Chrysler Group LLC partners for reaching the formal agreement with Lemon Law protections for consumers,” Miller said. “The agreement is a significant ‘win’ for consumers nationwide.”

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More background and detail:

The State Attorney General offices that led the negotiations were IA, CA, CT, FL, MI, NH, NY, and OH. Iowa Consumer Protection Division Director Bill Brauch heads the “Autos Working Group” of the National Assn. of Attorneys General (NAAG). Miller also recognized Karen Cordry, Bankruptcy Counsel for NAAG, for her assistance in reaching the agreement.

Under the court order, the “New Chrysler” company “will recognize, honor and pay liabilities under Lemon Laws for additional repairs, refunds, partial refunds (monetary damages) or replacement of a defective vehicle (including reasonable attorneys’ fees, if any, required to be paid under such Lemon Laws and necessarily incurred in obtaining those remedies) . . . on vehicles manufactured by the Debtors [Chrysler] in the five years prior to the Closing . . .”

The court order also provides that the “New” Chrysler “has agreed to continue addressing Lemon Law claims (to the extent that they are Assumed Liabilities) using the same or substantially similar procedural mechanisms previously utilized by the Debtors [Chrysler].” The states said the “procedural mechanisms” referred to in the court’s order means state-run or third-party Lemon Law dispute arbitration programs set up under individual state Lemon Laws to help consumers and manufacturers settle Lemon Law disputes.

Miller said the states will be watching the GM bankruptcy carefully for similar issues.

Iowa’s Lemon Law:

Miller said Lemon Laws vary slightly from state to state, but most have comparable terms. Iowa’s Lemon Law gives consumers the right to seek a refund or replacement vehicle if their new vehicle has a defect, malfunction or condition that renders the vehicle unfit, unreliable or unsafe for warranted or ordinary use, or which significantly diminishes the value of the vehicle.

An Iowa consumer’s vehicle can qualify for refund or replacement if one or more of the following conditions have been met during the Lemon Law Rights Period:

  • The vehicle has been in the shop 3 or more times for the same problem, and the problem still exists. Or,
  • The vehicle has been in the shop one time by reason of a defect likely to cause death or substantial bodily injury, and the problem still exists. Or,
  • The vehicle has been out of service for any number of problems 20 or more days, and the defect(s) still exist. The days out of service do not need to be consecutive.

The Iowa Lemon Law rights period is defined as the term of the manufacturer's written warranty, the period ending two years after the date of the original delivery of a motor vehicle to a consumer, or the first 24,000 miles of operation attributed to a consumer, whichever expires first.

For more information, go to .

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