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Toyota to pay $1.2B to settle criminal probe

Published: Wednesday, March 19, 2014 5:08 p.m. CDT

WASHINGTON – Toyota agreed to pay $1.2 billion to settle an investigation by the U.S. government, admitting it hid information about defects that caused Toyota and Lexus vehicles to accelerate unexpectedly and resulted in injuries and deaths.

Attorney General Eric Holder said Wednesday the penalty is the largest of its kind ever imposed on an auto company. The four-year criminal investigation focused on whether Toyota promptly reported the problems related to unintended acceleration.

The company admitted to misleading consumers and regulators by assuring them it had addressed the problems – which became public in 2009 following a car crash in San Diego that killed a family of four – through a limited safety recall of certain models.

Toyota knew at the time that it hadn’t recalled other models susceptible to the same acceleration problem and also took steps to conceal a separate acceleration problem related to a faulty pedal, according to the Justice Department.

“In other words, Toyota confronted a public safety emergency as it if were a simple public relations problem,” Attorney General Eric Holder said at a news conference.

Toyota said in a statement that in the four years since the recalls it had “made fundamental changes to become a more responsive and customer-focused organization, and we are committed to continued improvements.”

The company’s finances have recovered from the recalls, as well as the recession and the 2011 tsunami in Japan. But its once-sterling reputation for quality and reliability has been tarnished, and its market share is still below where it was in 2009.

Prosecutors filed a criminal charge Wednesday alleging the company defrauded consumers by issuing misleading statements. They said they’ll move to dismiss the charge in three years if Toyota complies with the terms of the settlement. An independent monitor will review policies, practices and procedures at the company.

No Toyota executives were charged under the deal. U.S. Attorney Preet Bharara of the Southern District of New York, whose office brought the case, said he expected the agreement to be a “final resolution.”

Starting in 2009, Toyota issued massive recalls, mostly in the U.S., totaling more than 10 million vehicles for various problems including faulty brakes, sticky gas pedals and ill-fitting floor mats. From 2010 through 2012, Toyota paid fines totaling more than $66 million for delays in reporting safety problems. Toyota agreed last year to pay more than $1 billion to owners of its cars who claimed to have suffered economic losses because of the recalls.

The company still faces wrongful death and injury lawsuits that have been consolidated in California state and federal courts. In December, Toyota filed court papers after saying that it’s in settlement talks on nearly 400 U.S. lawsuits, but some other cases aren’t included in the talks.

The negotiations began less than two months after an Oklahoma jury awarded $3 million in damages to the injured driver of a 2005 Camry and to the family of a passenger who was killed.

The ruling was significant because Toyota had won all previous unintended acceleration cases that went to trial. It was also the first case where attorneys for plaintiffs argued that the car’s electronics – in this case the software connected to a midsize Camry’s electronic throttle-control system – were the cause of the unintended acceleration.

At the time, legal experts said the Oklahoma verdict might cause Toyota to consider a broad settlement of the remaining cases.

Toyota has blamed drivers, stuck accelerators or floor mats that trapped the gas pedal for the acceleration claims that led to the big recalls of Camrys and other vehicles. The company has repeatedly denied the electronics are flawed.

No recalls have been issued related to problems with onboard electronics. In the Oklahoma case, Toyota attorneys theorized that the driver mistakenly pumped the gas pedal instead of the brake when her Camry ran through an intersection and slammed into an embankment.

But after the verdict, jurors told AP they believed the testimony of an expert who said he found flaws in the car’s electronics.

While significant, the latest penalty isn’t a severe hit to Toyota’s finances. In its last fiscal quarter alone, Toyota posted a $5.2 billion profit, crediting strong global sales.

Toyota’s U.S. market share, however, has fallen more than 4 percentage points since unintended acceleration came to the forefront in August of 2009, when a California Highway Patrol officer and three others were killed in a fiery crash.

At the time, Toyota controlled 17.8 percent of the U.S. market. Gas prices were high, favoring Toyota’s fuel-efficient small cars and hybrids. Detroit automakers were in serious financial trouble and had few fuel-efficient cars for sale.

By last month, though, Toyota’s share totaled just 13.3 percent, according to Autodata Corp. Citi research analyst Itay Michaeli estimated last week that the recalls have cost Toyota more than 1 percentage point of market share. And the Detroit and South Korean automakers now sell more competitive small and midsize cars.

The Toyota case could foreshadow what’s in store for General Motors. The same U.S. attorney’s office is investigating the Detroit auto giant for its slow response to a faulty ignition switch problem in older compact cars that has been linked to at least 31 crashes and 12 deaths. NHTSA also is investigating whether GM withheld information about the problem and could fine the automaker $35 million.

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