Last week, the U.S. Justice Department announced that Toyota will pay 1.2 billion dollars in fines to settle a four year long criminal probe commenced by the Justice Department arising out of sudden acceleration problems that caused the wrongful death of occupants of Toyota vehicles highlighted by a tragic crash in August of 2009. The acceleration issues were caused by improper floor mats which would get jammed with the accelerator, as well as defective gas pedals. Initially, Toyota made the extremely poor decision to blame many of the accidents on “driver error”, but it became apparent from a safety point of view and the public relations debacle that ensued that this was a very bad strategy, indeed.
The 1.2 billion dollar penalty is by far the largest ever paid by an automobile manufacturer to settle a criminal investigation. In addition to the huge monetary penalty, Toyota has agreed to have a monitor to oversee its safety communications, its response to accident reports and to review its processes for issuing safety bulletins. Previously, Toyota had paid much smaller fines of 16.375 million in 2010 for delay in reporting pedal and floor mat defects, and $17.35 million in 2012 in a separate safety recall.
The sudden acceleration issues came to Toyota’s attention in 2009 with numerous reports of “runaway cars.” This was highlighted by a particularly tragic accident in San Diego in August of 2009 when five people were killed as the result of an improper floor mat which trapped the accelerator in a 2009 Lexus ES. In that accident, 911 recordings caught in horrific detail the occupants’ ordeal as the vehicle accelerated to 113 mph before flying into an embankment.
Part of the federal investigation examined whether Toyota had provided false and/ or misleading statements to the National Highway Traffic Safety Administration (NHTSA) when it was investigating the sudden acceleration issues several years ago. At that time, Toyota recalled approximately 8.1 million vehicles. Toyota still faces enormous costs in defending against hundreds of personal injury lawsuits that have been consolidated in California state and federal courts, in which settlement talks are proceeding. Bloomberg reported that 131 of approximately 300 cases have been settled in principle for undisclosed sums, as is always the case in settlement with corporations, which require confidentiality agreements. Further, last year Toyota agreed to pay about 1 billion dollars to owners of Toyota vehicles who alleged that their vehicles lost value as a result of the safety recalls. Between personal injury, wrongful death, and warranty claims, and the deal with the federal government, Toyota has paid approximately $3 billion. However, analysts estimate that the company may earn as much as $19 billion in the 2014 fiscal year.
There is no doubt that the Toyota criminal penalties and poor response to the safety issues in 2009 led to GM’s decision last month to commence massive recalls of 2005-2009 Cobalts, Ions, and Pontiacs with defective ignition switches resulting in many deaths and serious injuries from the loss of power to safety systems, in particular, power steering and airbags. Certainly, the fact that Congress intends to conduct hearings into GM’s ignition switch safety recalls also contributed to GM’s strategy. Further, GM’s sudden change in strategy to attempt resolution of many of the personal injury and wronged death claims is undoubtedly influenced by Toyota’s maladroit response to its safety recalls and the aftermath, which resulted in a huge payout to the feds that GM is seeking to avert.
Perhaps the Toyota and GM safety issues, which have cost countless lives and resulted in grievous injuries, will now be the impetus for the Motor Vehicle Safety Act, which failed to pass the Congress in 2010. Under this long overdue and sensible legislation, fought and defeated by auto industry lobbyists and their cronies in Congress, more funds would be provided to the NHTSA to investigate automobile defects; publicize a database of early warnings that auto manufacturers issue to the government; and authorize the agency to assess larger fines against corporations that fail to timely recall defective automobiles.
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