Monday, July 19, 2010

Toyota faces largest civil penalty ever issued to automaker, car lots abound with dummies

The government proposed an unprecedented fine of $16.4 million dollars against Toyota, accusing the automaker of hiding a "dangerous defect" from regulators. Transportation Secretary Ray LaHood announced the penalties the government is planning to levy against Toyota for faulty gas pedals that have led to a recall for millions of the company’s vehicles, including such popular models as Camry and Corolla.

LaHood stated that documents obtained from Toyota show that the company was aware of the problem with the sticking gas pedals for several months before it issued a recall. This problem impacted 2.3 million vehicles. "We now have proof that Toyota failed to live up to its legal obligations," LaHood said in an official statement. "Worse yet, they knowingly hid a dangerous defect for months from U.S. officials and did not take action to protect millions of drivers and their families."

Secretary LaHood Announces DOT is Seeking Maximum Civil Penalty from Toyota

Because of the deliberate nature of Toyota’s actions, the government is seeking the maximum penalty of $16.375 million. As federal investigations continue, additional repercussions are likely to follow for the beleaguered Japanese automaker. The fine is just the latest development in a series of events that have stained Toyota’s once-sterling image and made it the subject of private lawsuits seeking billions of dollars in damages. To date, Toyota Motor Corp. has recalled more than 6 million vehicles in the U.S., and more than 8 million worldwide. These massive recalls were caused by acceleration problems in multiple models and braking issues in the Prius hybrid.

Toyota is facing 138 potential class-action lawsuits over falling vehicle values and nearly 100 personal injury and wrongful death cases in federal courts nationwide. If Toyota pays the fines, that could be considered an admission of wrongdoing. That would in turn adversely impact the company’s standing in litigation. On the other hand, if Toyota chose to dispute the penalties imposed by the government, that could undermine the automaker's attempts to move on from the recalls.

The automaker did not say whether or not it would pay or dispute the fine. Toyota has two weeks to accept or contest the penalty. "While we have not yet received their letter, we understand that NHTSA has taken a position on this recall," Toyota said in a statement, referring to the National Highway Transportation Safety Administration (NHTSA). "We have already taken a number of important steps to improve our communications with regulators and customers on safety-related matters as part of our strengthened overall commitment to quality assurance."

Under federal law, automakers must notify NHTSA within five days of determining that a safety defect exists and promptly conducting a recall immediately thereafter. NHTSA itself has come under criticism for being too lenient in the past in the handling of Toyota’s handling of defects and recalls. According to the statement by the Transportation Department, the fine it is seeking is specifically tied to the delayed recall related to the sticking pedal defect. Toyota could face additional penalties if warranted by ongoing federal investigations.

The recalls led to a series of hearings in Congress that included the company’s president, Akio Toyoda, as well as relatives of those killed in crashes and owners of vehicles who reportedly had experienced unintended acceleration. Mr. Toyoda, the grandson of Toyota’s founder, has apologized profusely for the accidents and vowed his company would do everything possible to prevent future safety problems. Toyota has appointed a new Chief Quality Officer for North America and has empowered its North American office to have a greater impact in making safety-related decisions.

During Congressional testimony, officials at Toyota’s American operations said that they were unaware of the sticking accelerator issue until this winter, even though Toyota had received complaints about it in Ireland and Britain in late 2008, and began changing production methods in Europe last August. Accelerator problems in Toyotas allegedly caused crashes resulting in 52 deaths. Subsequent recalls have led to congressional hearings, a federal criminal investigation, numerous civil lawsuits and a thorough review by the Transportation Department.

Toyota has attributed the problem to sticking gas pedals and accelerators that can become trapped in floor mats. Dealers have fixed 1.7 million vehicles under recall so far. The sticky accelerator pedal recall involves the 2007-2010 Camry, 2009-10 Corolla, 2009-10 Matrix, 2005-10 Avalon, the 2010 Highlander and 2007-10 Tundra. Consumer groups disagree, suggesting that electronics could be the real culprit. Numerous Toyota owners who had their cars fixed in the recall have complained of additional problems with their vehicles, accelerating unexpectedly. Toyota claims it was unable to identify either mechanical or electrical problems.

NHTSA said documents provided by Toyota showed the automaker had known about the sticky pedal defect since at least Sept. 29, 2009, when it issued repair procedures to distributors in 31 European countries and Canada to address complaints of sticking pedals, sudden increases in engine RPM and sudden vehicle acceleration.

The government said the documents also show that Toyota knew that owners in the U. S. had experienced the same problems. Toyota has reportedly provided NHTSA with more than 70,000 pages of documents during the investigation. NHTSA has the most active defect investigation program in the world, opening or closing an investigation almost every week. Over the last three years, NHTSA’s defect and compliance investigations have resulted in 524 recalls involving 23.5 million vehicles.

The $16.375 million penalty against Toyota is the largest fine allowed per recall under the Tread Act, which was enacted after accidents involving Firestone tires on Ford Explorers. Though it would be a record in the auto industry, the fine pales in comparison with penalties the government has levied against other companies (such a $2.3 billion dollar settlement the Justice Department reached with the pharmaceutical giant Pfizer, over fraudulent marketing issues).

Toyota reported strong March sales, helped by incentives it introduced in the wake of the recalls. The company’s advertisements played on consumers’ loyalty to the brand. Toyota’s customers might not be as supportive once they discover that Toyota purposely tried to hide the defects, as the government contended. At that point, mannequins used to lure in customers by a Los Angeles Toyota dealerships, might be the only dummies left to populate the car lot.

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