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Justice Dept. Confirms Toyota Settlement – Maker Will Take $1.2 Bil Hit

“Car owners have a right to expect that their vehicle is safe.”

by on Mar.19, 2014

Motorists "have a right to expect their vehicle is safe," said Attorney General Holder, adding that Toyota intentionally misled the public.

Declaring that “car owners …have a right to expect that their vehicle is safe,” U.S. Attorney General Eric Holder today announced a settlement of a long-running investigation into Toyota’s handling of a series of problems linked to a number of deaths and injuries and the eventual recall of more than 10 million vehicles.

The maker has agreed to pay $1.2 billion to settle the criminal investigation and will follow up on a number of steps it has already taken to ensure that it no longer delays responding to possible safety problems. That includes setting up rapid-response teams to quickly investigate customer concerns.

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The settlement comes just as the Justice Department begins an investigation into General Motors’ handling of a recall involving defective ignition switches that have been linked to at least 12 deaths.

“When car owners get behind the wheel, they have a right to expect that their vehicle is safe,” said Holder, during a news conference in Washington, D.C. on Wednesday morning. “Toyota violated that basic compact.”

The government launched its investigation following a series of recalls that began nearly five years ago for a pair of problems related to so-called unintended acceleration.  The first, in October 2009, focused on loose carpets that could jam an accelerator pedal wide open. The recall followed widespread reports about a fiery crash that killed a California Highway Patrol Officer and several family members.  In January 2010, Toyota halted sales of a number of key models due to a potentially sticky accelerator assembly.

All told, the automaker recalled around 10 million Toyota and Lexus vehicles sold in the U.S. alone, and millions more sold elsewhere.

But as regulators, and several Congressional committees began investigating the various problems they discovered internal documents that suggested Toyota had sidestepped the mandated safety reporting process. One document boasted about how the company had convinced the National Highway Traffic Safety Administration to scrub a planned recall, saving Toyota tens of millions of dollars.

“Rather than promptly disclosing and correcting safety issues about which they were aware, Toyota made misleading public statements to consumers and gave inaccurate facts to members of Congress,” said Attorney General Holder at his news conference.

As part of the agreement, Toyota will have to pay a $1.2 billion fine – the largest fine ever imposed on an automotive manufacturer.  It also must acknowledge that it deceived American motorists about the problems involved in the two recalls and ones that followed covering similar problems.  If it meets those terms, the Justice Dept. will defer prosecution for a wire fraud charge for three years and then seek to dismiss the charges.

(Despite pressure from regulators, tougher rules, are dangerous cars still on the road? Click Here to read this special report.)

Toyota quickly took steps on Wednesday to meet the terms of the agreement.

“At the time of these recalls, we took full responsibility for any concerns our actions may have caused customers, and we rededicated ourselves to earning their trust,” Christopher P. Reynolds, chief legal officer, Toyota Motor North America, said in a statement.  “In the more than four years since these recalls, we have gone back to basics at Toyota to put our customers first.”

The statement outlined “a number of steps” the maker says it has or will take, including the deployment of rapid-response teams and the appointment of a safety czar to streamline the process of isolating and handling future safety issues.

“Entering this agreement, while difficult, is a major step toward putting this unfortunate chapter behind us,” added Reynolds.

Toyota said it will take a $1.2 billion after-tax charge against earnings during the current quarter, the last in the Japanese maker’s fiscal year, which ends on March 31.

The Japanese company – the world’s largest automaker based on 2013 sales – already has settled a number of lawsuits related to the unintended acceleration problem, running up billions in additional costs. But it has also continued fighting some critical cases in court, notably those based on claims that its products suffer from mysterious electronic gremlins that would cause its engines to surge out of control. Several investigations, including one handled by NASA, could not find any such evidence.

(Toyota halts sale of Camry, other key models due to new safety problem. Click Here for the story.)

Recent market studies, including surveys by CNW Marketing, have shown that Toyota has largely rebuilt its image for building reliable vehicles since the unintended acceleration scandal first broke.

The big question is whether GM will be able to overcome its own safety crisis.

“The timing of this settlement is interesting because it means the government will finalizing the last major automotive recall, Toyota’s unintended acceleration, just as it gears up for the next big recall related to GM’s ignition switch,” said analyst Karl Brauer, of Kelley Blue Book. “The cases are similar because they both involve a long, established history of vehicle incidents that took years to identify and address.”

Indeed, GM may be taking some of the pages out of the Toyota playbook. Among other things, it appointed a new global safety czar on Tuesday, a step the Japanese maker took after its unintended acceleration recalls.

(For more on the new GM safety chief, Click Here.)

And, as Toyota CEO Akio Toyoda did, GM’s new chief executive, Mary Barra, is personally taking the lead in the ignition switch crisis.  She once again apologized for the long-delayed recall on Tuesday, adding that, “Our goal is to make sure that something like this never happens again.”

GM now faces not only a probe by the Justice Dept., but separate investigations by both the U.S. House and Senate, an inquiry by NHTSA – and its own internal investigation.

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3 Responses to “Justice Dept. Confirms Toyota Settlement – Maker Will Take $1.2 Bil Hit”

  1. Jorge M. says:

    This is just WRONG to punish an auto maker for a claimed defect that never existed and has never been proven to exist. The Feds can spin it any way they like but punishing an auto maker for the states improper licensing of incompetent drivers is outrageous and a disgrace.

    • Paul A. Eisenstein says:

      Again, Toyota knew there were problems. This is NOT about the mysterious engine gremlins but two real recalls. Toyota did not follow law. Period. They deserved this.

  2. Jorge M. says:

    Yes Paul, I respectfully disagree with you again. The unprecedented fine is not just for Toyota “knowing about problems”. That is the point. The Feds are punishing Toyota for the incompetence of drivers and the improper licensing of said drivers by the states. This is WRONG, period.