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Toyota reaches $1.2 billion settlement to end criminal probe Toyota reaches $1.2 billion settlement to end probe of accelerator problems
(about 7 hours later)
For years, Toyota Motor Corp. lied to regulators, Congress and the public for years about the sudden acceleration of its vehicles, a deception that led the carmaker on Wednesday to reach a $1.2 billion settlement with the Justice Department. Toyota Motor lied to regulators, Congress and the public for years about the sudden acceleration of its vehicles, a deception that caused the world’s largest automaker on Wednesday to be hit with a $1.2 billion Justice Department fine.
Prosecutors say Toyota’s efforts to keep the problems under wraps led to a series of fatalities that could have been prevented. The deadly deception has resulted in a financial settlement that is being called the largest criminal penalty imposed on a car company in U.S. history. It amounts to more than one-third of Toyota’s $3.4 billion profit in 2013. Prosecutors say Toyota’s efforts to conceal the problem and protect its corporate image led to a series of fatalities that could have been prevented. The settlement, which amounts to more than a third of Toyota’s 2013 profit, is being called the largest criminal penalty imposed on a car company in U.S. history.
Toyota’s settlement was announced amid an unfolding scandal over General Motors’ failure to fix ignition switches that if jostled or weighted with too many keys could cause cars to stall, disabling their air bags. Toyota says in the settlement that it misled Americans by making deceptive statements about the safety problems that caused its vehicles to speed up uncontrollably, a stark admission for a company that has built its brand on safety and reliability.
Toyota admits that it misled Americans by concealing and making deceptive statements about the safety problems that caused its vehicles to speed up, a rare admission of guilt for a corporation in a criminal case. The deal is a win for the government and could serve as a template for a similar case against General Motors, which is under investigation for failing to repair a defect it has linked to 12 deaths. Early on, Toyota suggested that driver error was to blame, saying that some people may have hit the gas when they meant to hit the brake. Even after issuing recalls to address problematic floor mats that in some cases pinned down accelerators, the company hid a flawed gas pedal design that it knew did the same thing, according to documents accompanying the agreement.
Safety fears erupted around some of Toyota’s most popular brands in 2009, when a California highway patrol officer and his family were killed in a high-speed crash caused by the unintended acceleration of his car. The deal is a victory for the government and could serve as a model for a case against General Motors, which is under investigation by Congress, safety regulators and federal prosecutors for taking more than a decade to issue a recall for an ignition-switch problem it has linked to 31 accidents and 12 deaths.
Toyota eventually recalled millions of vehicles — one of the largest consumer recalls in the history of the automotive industry. But Justice found that the company did not come clean soon enough. “Companies that make inherently dangerous products must be maximally transparent, not two-faced,” said Preet Bharara, U.S. attorney for the Southern District of New York, who led the Toyota investigation and — according to a law enforcement source who spoke on the condition of anonymity because he was not authorized to discuss the topic — has launched a preliminary criminal probe of GM. “That is why we have undertaken this enforcement action. And the entire auto industry should take notice.”
As far back as 2007, the carmaker had received complaints about faulty accelerators in its Toyota and Lexus brand vehicles, which led the National Highway Traffic Safety Administration to launch a probe. While Toyota told the agency there was no need to recall any cars, the automaker conducted an internal review that revealed a design defect it failed to share, according to prosecutors. Safety fears erupted around some of Toyota’s most popular models in 2009, when California Highway Patrol officer Mark Saylor and three family members were killed in a high-speed crash caused by the unintended acceleration of his car. The terrifying episode was captured in a 911 emergency call in which Saylor’s brother-in-law described speeding out of control in a Lexus at more than 125 mph before the car crashed, killing all four occupants.
Rather than pulling its vehicles off the road, the company issued a limited recall of floor mats it blamed for the acceleration troubles. Toyota engineers revised design guidelines for the space between the gas pedal and the floor, but only applied the changes to cars in the process of a model redesign. That left plenty of vehicles on the road that were not up to par. Relatives of the Saylor family, who settled a case against Toyota for an undisclosed amount in 2010, declined through their attorney to comment on the new settlement.
“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,” Attorney General Eric Holder said at a press conference announcing the settlement. After the accident, Toyota eventually recalled millions of vehicles — one of the largest recalls in the history of the automotive industry. But federal prosecutors found that the company had not come completely clean.
As part of the deal, Toyota has entered into a so-called deferred prosecution agreement that gives Justice the right to pursue criminal charges if the carmaker fails to live up to the agreement, according to the department. The automaker must acknowledge the facts of the government’s case and have an independent monitor review its safety practices. None of its employees will face criminal charges. The company assured the public that the “root cause” of unintended acceleration had been addressed by the recall, blaming floor mats that accidentally trapped the depressed gas pedals of cars and trucks.
Toyota is “effectively on probation for three years,” Manhattan U.S. Attorney Preet Bharara, whose office led the government’s investigation, said during the news conference. “It cared more about savings than safety and more about its own brand and bottom line than the truth.” But Toyota knew that models it had not recalled had similar floor-mat problems, the agreement said. Also, the company hid from federal regulators a second cause of unintended acceleration in its vehicles: a sticky gas pedal.
In a statement, Christopher P. Reynolds, chief legal officer at Toyota Motor North America, said the company took full responsibility for the impact of its actions on consumers at the time of the recalls in 2010. The problem was caused by plastic material inside the pedal that could cause the accelerator to become stuck in a partially depressed position. The pedals were installed in several models, including the Camry, the Matrix, the Corolla and the Avalon.
“We have made fundamental changes across our global operations to become a more responsive company,” he said. “Entering this agreement, while difficult, is a major step toward putting this unfortunate chapter behind us.” The problem had surfaced in Toyota vehicles in Europe in 2008, causing instances of uncontrolled acceleration. In early 2009, the company gave European Toyota distributors information about the sticky pedals along with instructions to replace them if customers complained.
In the aftermath of the recalls, Reynolds said Toyota has enhanced quality control and committed $50 million in 2011 to launch a safety research center in Ann Arbor, Mich. He said the company is improving the way it responds to reports of vehicle problems by giving regional managers more leeway in handling quality issues. Meanwhile, rather than issuing a recall, the company quietly directed its pedal supplier to change parts in Europe and made plans to roll out the same change in the United States.
Toyota is still facing wrongful death and personal injury lawsuits. The accelerator debacle was a crushing blow for a company that became one of the largest world’s largest auto makers by burnishing its reputation for safety and reliability. By then, the problem had already cropped up in cars sold in the United States, according to the documents. At nearly the same time as the highly publicized San Diego accident, Toyota staffers sent a memo to the company’s headquarters in Japan warning of an unintended-acceleration problem apart from the one caused by the floor mats.
“While the $1 billion price tag represents a costly resolution, Toyota can put this issue behind it to fully focus on current and future challenges in a highly competitive market,” said Karl Brauer, senior analyst at Kelley Blue Book. For several months, Toyota received more evidence of the pedal problem and quietly made plans to address it without informing federal safety officials as required by law. Concerned that federal officials would learn about these plans, the company canceled the change in pedal design and communicated that change orally rather than in writing, so there would be no paper trail.
Critics of the settlement say the hefty fine means little as long as no executives face jail time. The facts of the case describe a level of indifference and greed that warrants stiffer punishment, they say. After more instances of sticky pedals came to the company’s attention in 2009, executives decided to disclose the issue to federal regulators and issue a new recall. But the deception did not end there. After the recall was completed, the company produced an inaccurate timeline and submitted it to federal regulators and Congress, making it appear as if the company had acted quickly to address the sticky-pedal issue.
“Money as a deterrent is of no consequence to these overpaid and overindulged individuals, as the companies are flush with cash,” said attorney David H. Peirez, a partner at the law firm of Reisman, Peirez, Reisman and Capobinaco. “Deferred prosecution agreements are a joke—all they defer is a jail sentence but not the next recall.” “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,” Attorney General Eric H. Holder Jr. said at a news conference announcing the settlement.
Toyota’s settlement arrives amid an unfolding scandal over General Motors’ failure to fix ignition switches that if jostled or weighted with too many keys could cause cars to stall, disabling their air bags. So far, the problem has been officially linked by the company to 31 accidents and 12 deaths. Last month, the automaker recalled 1.6 million Chevrolet Cobalts and five other vehicle models. As part of the deal, Toyota has entered into what is called a ­deferred-prosecution agreement that gives federal prosecutors the right to pursue criminal charges if the carmaker fails to live up to the agreement, according to the department.
GM has told safety regulators that it fielded complaints about the problem as early as 2001. But the company said it could not pinpoint the problem and did not issue a recall until last month. The automaker must acknowledge the facts of the government’s case and have an independent monitor review its safety practices. None of its employees will face criminal charges.
“GM is just getting started on its path to resolution and will probably be working to resolve the ignition switch recall for some time,” Brauer said. Christopher P. Reynolds, chief legal officer at Toyota Motor North America, said the company took full responsibility for the effects of its actions on consumers at the time of the recalls.
“We have made fundamental changes across our global operations to become a more responsive company,” he said in a statement. “Entering this agreement, while difficult, is a major step toward putting this unfortunate chapter behind us.”
In addition to the $1.2 billion fine, which will go into the government’s coffers, Toyota faces nearly 400 wrongful-death and personal-injury lawsuits. It has settled at least seven lawsuits in the past few months.
“The Justice Department settlement with Toyota is a complete game-changer,” said Clarence Ditlow, executive director of the Center for Auto Safety, a watchdog group. “Until today, automakers faced insignificant fines and no criminal penalties under the Vehicle Safety Act. Today’s fine of $1.2 billion against Toyota makes the $35 million maximum fine that [federal regulators] can impose seem like chump change.”
Still, critics of the settlement say the hefty fine means little as long as no executives face jail time. The facts of the case describe a level of coordinated lying and greed that warrants stiffer punishment, they say.
“Money as a deterrent is of no consequence to these overpaid and overindulged individuals, as the companies are flush with cash,” said David H. Peirez, a partner at the law firm of Reisman, Peirez, Reisman and Capobianco. “Deferred-prosecution agreements are a joke — all they defer is a jail sentence, but not the next recall.”
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