Toyota Paying $1.2 Billion, Put “On Probation” Over Acceleration Problems

Andrew Klips  |

Shares of Toyota Motor Corp. (TM) are trading lower on Wednesday, moving towards their lowest level since last April, after the company agreed to pay a $1.2 billion penalty to settle a four-year criminal investigation case by the U.S. Justice Department. As part of the agreement, the DOJ agreed to defer prosecution of Toyota under the terms that Toyota admitted to misleading U.S. consumers about two safety issues with its Toyota and Lexus vehicles.

Toyota also agreed to have an independent monitor to review and assess policies, practices and procedures relating to safety-related public statements and reporting obligations. If Toyota abides by all the terms of the agreement for the next three years, the government will drop the charges at that time. In a press conference, U.S. Attorney Preet Bharara called this Toyota effectively being “on probation” for three years.

“Toyota stands charged with a criminal offense because it cared more about savings than safety and more about its own brand and bottom line than the truth,” said U.S. Attorney Preet Bharara, in a prepared statement today.

The $1.2 billion fine is the largest penalty of its kind ever imposed on an automaker.

The case stems from “unintended vehicle acceleration” problems between 2009 and 2010 that gained widespread notoriety after a California Highway Patrol officer John Saylor and three family members were killed in an August 2009 fiery car crash while driving a Lexus ES350.  Improperly installed, incompatible floor mats installed by a Lexus dealer were attributed for the fatalities. Saylor’s brother-in-law was killed in the crash, but placed a harrowing 911 call before the accident as the vehicle was speeding out of control (estimated at 120 mph), saying that the accelerator was stuck and there were no brakes.

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Toyota then began a recall that included more than 10 million cars because of issues with brakes, gas pedals and floor mats. Hundreds of lawsuits have followed. In 2013, Toyota agreed to pay in excess of $1.5 billion to put an end to lawsuits related to consumers claiming economic losses due to the recall devaluing their vehicles.  The company has also paid National Highway Traffic Safety Administration fines of nearly $70 million for its negligence in promptly reporting problems. 

Toyota had a long-standing reputation for reliability, but the recalls definitely gave the Japanese automaker a black eye.

Further, the government investigation uncovered that Toyota lied about how long it had been looking into the sticky gas pedal problem. The company tried to make it look like they addressed it within 90 days of discovering it, when in fact, they had known about prior to the timeline they provided.

“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 Eric Holder in a statement today.

“When car owners get behind the wheel, they have a right to expect that their vehicle is safe. If any part of the automobile turns out to have safety issues, the car company has a duty to be upfront about them, to fix them quickly, and to immediately tell the truth about the problem and its scope. Toyota violated that basic compact,” added Holder.  The Attorney General warned, “Other car companies should not repeat Toyota’s mistake”.

Toyota said in a statement this morning that it has cooperated with the government and "made fundamental changes to become a more responsive and customer-focused organization.”

Hemorrhaging cash for settlements still may not be done for Toyota. In October, an Oklahoma jury awarded $3 million in a lawsuit in which Jean Bookout, then 76, driving a 2005 Camry was unable to stop the car from speeding out of control in 2007, crashing, injuring her and killing her friend and passenger Barbara Schwarz, 70. In that case, the plaintiff said the problem was in the electronics of the car, perhaps setting precedent for other lawsuits not citing floor mats, brakes or stuck accelerators as the culprit.

Shares of TM are down by 0.54 percent at $109.24 in afternoon trading on Wednesday. So far in 2014, the stock has lost about 10 percent of its value.

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