What Are Car Owners Supposed to Do When Automakers Shut Down?

If it’s not every driver’s worst nightmare, perhaps it should be. Imagine the company that made your shiny new vehicle goes bankrupt. Then what? Here in Canada, it turns out there’s very little legal recourse, consumer protection, or support available to owners of cars that have been suddenly orphaned by the death of their manufacturer. 

This is not a hypothetical scenario for owners of the Fisker Ocean, a battery-powered SUV made by American upstart Fisker Inc., which declared Chapter 11 bankruptcy in June of this year. There are no official figures, but estimates from various sources suggest a few hundred Oceans likely made it onto Canadian streets before the company collapsed. Unfortunately, there is a very real possibility owners could eventually be left with nothing but an expensive paperweight in their driveways.

Fisker is not alone. High-profile EV startups including Faraday Future and Byton also flamed out recently. Long-established automakers can fail too, as Saab, Saturn, Pontiac, and so many others have proven all too well. Despite the industry’s challenges, there are still plenty of upstarts with compelling new vehicles vying for your money, including Rivian, Lucid, Vinfast, and Ineos.

Buyer Beware

“When you decide to buy a new vehicle from a new brand, or even a new entrant into the Canadian marketplace, definitely that adage of ‘buyer beware’ comes into place,” said Justin Jakubiak, a partner at Toronto-based Fogler, Rubinoff LLP who specializes in automotive and dealership law.

“While there is legislation in place for consumer protection, it really only goes so far as the company being in business. Once the company is out of business, those consumer protections are out the window,” said Jakubiak. “There's potentially some support from various regulatory associations in each province […] but at a federal level, I'm not aware of any baseline protections that exist when a new or emergent car company comes to Canada and doesn't make it.”

Without a manufacturer to support a vehicle, parts could become increasingly hard or even impossible to find. Warranties could become worthless. Resale values could tank. Even something as simple as losing the keyfob could render a vehicle useless if there’s nobody to make a replacement. The fact modern cars are like rolling computers — relying on special software, cloud-connected infotainment systems, and proprietary tools to work on — only makes matters worse for potential owners.

Fisker Inc. did not respond to a request for comment. In addition, other automotive startups declined to comment on what, if any, measures they have in place to protect customers in case of bankruptcy.

Financial Compensation

Vehicle owners aren’t likely to get much (if any) money back from a bankrupt automaker. 

Under Canadian insolvency law, consumer claims against insolvent companies, including automobile companies, are generally treated as “unsecured claims,”  according to a spokesperson for Canada’s Ministry of Innovation, Science and Economic Development, which oversees the Office of Consumer Affairs. In effect, that leaves vehicle owners to line up with every other minor creditor and supplier that a bankrupt company owes money to. If the company’s assets are liquidated, a licensed insolvency trustee will then determine whether or not to accept each unsecured claim against the company, such as a vehicle owner’s claim to recoup the cost of repairs that would’ve been covered under warranty.

Or, as the ministry’s spokesperson explained, if the manufacturer puts forward a restructuring plan — which may provide for warranty claims to be honoured going forward — the restructuring plan must be approved by creditors and the court. In that scenario, consumer warranty holders would be able to vote on the plan as creditors.

Either way, there’s no guarantee a vehicle owner would get any money in either situation, let alone enough to cover the full cost of any warranty repairs.

Depending on which province or territory you live in, however, you may have access to some additional financial compensation.

For example, the Ontario Motor Vehicle Industry Council (OMVIC) is a not-for-profit corporation responsible for regulating auto dealers on behalf of the province, and administering the Motor Vehicle Dealers Compensation Fund. In cases where a consumer has lost money as a result of a purchase from an OMVIC-registered dealer — including when the dealer has gone bankrupt or is closing down — the Fund can provide up to $45,000 for consumers. A spokesperson for Ontario’s Minister of Public and Business Service Delivery and Procurement called the Fund, “a last resort for consumers.” 

In the case of Fisker, records show all three Fisker dealers in Ontario — including Fisker Canada Ltd. — are no longer registered dealers with OMVIC, indicating that they have closed down.

“There is a small possibility that owners may have access to the OMVIC Motor Vehicle Compensation Fund,” said Jakubiak. “I think eligibility for the Compensation Fund is something which remains to be tested. This is a unique case, and it's not at all what the Compensation Fund is typically designed for,” he added. 

Recall Repairs

Car companies typically issue recalls, notify affected owners, and then repair vehicles for free, but what happens if there’s no more car company? It’s murky.

A source from a shop that services Fisker Oceans said Fisker has provided very little by way of the usual support, training, or documentation to help the shop properly service these vehicles. (The source didn’t want to be identified out of fear it may hurt the business.) Much of the information and documentation the shop has received has come from the independent Fisker Owners Association. The source added that the situation is very much still in flux and everything is changing on a daily basis. Thus far, Fisker has been providing parts for recall repairs — such as a new water pump — for free to the shop on the condition the shop not charge customers for the parts. But, Fisker wasn’t covering the shop’s labour costs for recall repairs, so the shop was passing that cost on to customers.

“Transport Canada will continue to monitor how the bankruptcy developments may affect Fisker vehicle owners in Canada in regards to safety recalls,” a spokesperson for the department wrote in an email.

“Transport Canada is also aware that the U.S. Department of Justice stated in a court filing that Fisker must repair recalled vehicles for free in the event of recalls,” the spokesperson continued. But, Transport Canada stopped short of saying the U.S. filing would be applied to Canada as well.

The federal department warned that obtaining replacement parts (for recall repairs or other fixes) may pose some challenges in the long term. Therefore, Transport Canada encourages Fisker owners to have any recalls corrected as soon as possible. (The company still has a recall info page online.)

“Recalls are nearly always the responsibility of the manufacturer, and that's sort of a condition of being able to sell [vehicles] in North America,” said Jakubiak. In the case of Fisker Inc., though, he added, “there's no one that the government can force to pay for those recalls or do that work.”

History’s Failed Car Companies

It’s not only startups like Fisker that are at risk of going out of business. The scrap heap of automotive history is littered with failed automakers. Each time a car company goes to the big crusher in the sky, the situation is a little different.

For example, when cult-favourite Swedish automaker Saab declared bankruptcy in 2011, it sent a memo to dealers stating that it would no longer honour warranties on its vehicles. General Motors, which owned Saab as a subsidiary from 2000 to 2010, stepped up to honour warranties, but only for Saabs produced under its ownership. That left owners of some 2010 and 2011 Saabs out in the cold without coverage. Their cars’ resale values plummetted.

On the other hand, when Mercedes-Benz killed off its Smart brand in Canada, Mercedes and its dealers remained to honour the warranty and service the cars. It was largely a similar story when GM axed Saturn, Pontiac, and other brands in 2010.

When the DeLorean Motor Company died in 1982, fans banded together to keep the cars running. “DeLorean owners also formed an association and there is a whole support network which continues today,” Jakubiak said. “My understanding is there are more than 6,000 [DeLorean] DMC-12s which remain on the road because of the support that owners continue to provide each other.”

Similarly, the independent Fisker Owners Association became a force to be reckoned with during Fisker’s bankruptcy proceedings. The volunteer-founded organization won some major victories for Ocean owners, including access to proprietary diagnostic service tools and a five-year commitment granting access to Fisker’s cloud services.

“All EVs on the road today depend heavily on cloud services, making this guarantee of five years of seamless access control and connectivity a critical service — not to mention peace of mind — for all Fisker Ocean owners," wrote Cristian Fleming, co-founder of the Fisker Owners Association.

Those victories only happened because owners quickly banded together and stood up for themselves. If you’re not up for a fight like that, you’d be wise to do some research on the financial health of the company selling your next car. As Jakubiak said, this is very much a “buyer beware” situation.