Lexus settlement – The Economist (blog)
TOYOTA will pay $1.2 billion to settle a criminal investigation by America’s Justice Department into how the carmaker handled recalls linked to problems with unintended acceleration nearly five years ago. Both the Justice Department and the FBI had been looking to see whether the Japanese giant had intentionally misled federal safety regulators after it began receiving complaints that some of its vehicles could surge out of control unexpectedly. Toyota eventually recalled more than 10m vehicles in America and millions more worldwide. It has also spent billions to settle various lawsuits and to repair those vehicles.
The settlement comes just as the Justice Department ramps up a preliminary investigation into how General Motors has handled the recall of 1.6m vehicles equipped with a faulty ignition switch. That technical problem—now thought to be linked to at least a dozen deaths—was revealed just last month, but an internal GM timeline indicates that the carmaker first knew of the malfunctioning switches as early as 2001.
The settlement was announced by Eric Holder, America’s attorney-general, who declared Toyota had violated a “basic compact” with its customers who “have a right to expect that their vehicle is safe.” In addition to the payment of $1.2 billion, the agreement Mr Holder outlined requires that Toyota will take further actions to prevent similar lapses in its behaviour in the future. In return, the Justice Department defers prosecution.
The first of Toyota’s recalls because of unintended acceleration occurred in October 2009, shortly after an officer of the California Highway Patrol and several family members were killed in a fiery crash involving a Lexus model. It soon became clear that the luxury sedan and a number of other Toyota models had floor mats that could inadvertently come loose and jam the accelerator pedal.
But barely three months later Toyota was forced to act again when it acknowledged that millions more vehicles might be equipped with potentially sticky accelerator assemblies. The carmaker halted sales of a number of products until it could repair those on dealer lots as well as vehicles already sold.
It quickly emerged that Toyota officials had known about the problems for some time. One internal memo, released prior to an angry hearing on Capitol Hill, showed the company crowing about having talked the National Highway Traffic Safety Administration out of ordering a recall, saving Toyota millions of dollars. Toyota has insisted that it did not intentionally deceive federal regulators, but the investigation showed otherwise.
The Japanese company—the world’s largest carmaker based on 2013 sales—has settled a number of lawsuits related to the unintended-acceleration problem. Recent market studies have shown that Toyota has largely rebuilt its image for making reliable.
A separate question is whether GM will be able to overcome its own safety crisis. The timing of the Toyota settlement is interesting: the government is putting an end to the last major recall case, just as it gears up to deal with the next big recall, explains Karl Brauer, an analyst at Kelley Blue Book, a market research firm. “The cases are similar because they both involve a long, established history of vehicle incidents that took years to identify and address.”
Indeed, GM is taking more than one page out of Toyota’s book. On March 18th GM appointed a new global safety tsar—a step the Japanese firm also took after its unintended-acceleration recalls. And Mary Barra, GM’s new chief executive, is herself taking the lead investigating the ignition-switch crisis—just like Toyota’s boss, Akio Toyoda. On March 18th Ms Barra also once again apologised for the long-delayed recall, adding that, “Our goal is to make sure that something like this never happens again.”
(This article was updated on March 19th at 2.50pm GMT.)