The Steep Cost Of Toyota’s Settlement With The U.S. Government – Forbes
Under the settlement, Toyota admitted that it “misled U.S. consumers by concealing and making deceptive statements about two safety issues involving its vehicles” and the safety defect. Toyota has to submit to an independent monitor, who will receive and assess Toyota’s procedures and practices.
Under terms of the settlement, Toyota has to wire the $1.2 billion to the U.S. Marshals Service by Tuesday. It is the largest such U.S. criminal penalty ever levied against an automobile company, and there already are questions over whether the fine is too steep.
“It sounds awfully punitive to me,” former General Motors General Motors Vice Chairman Robert Lutz said Wednesday on The Diane Rehm Show on NPR. “Even though it’s happening to a major Japanese competitor, I take no joy in it whatsoever.”
To be sure, Toyota is earning near-record profits. In November, Toyota forecast that it will earn $16.95 billion for the 12 months ending this March, just short of the record profit it earned six years ago. The company’s market capitalization is $172.6 billion, below its highs during the last decade, but still a strong position compared with other companies.
But $1.2 billion, in cash, is a lot of money that Toyota could spend in other ways. What will it buy in the auto industry?
- A new factory. Most of the new plants built in the United States over the past decade or so have cost around $1 billion. Toyota spent about $800 million on its newest U.S. plant in Blue Springs, Mississippi, which was considered a reasonable cost for such a factory. Some plants, of course, can cost far more. Tesla Motors Tesla Motors plans to spend $5 billion on its gigafactory, which is meant to produce both electric car batteries for its entire fleet.
- A new vehicle program. The rule of thumb in the automobile industry is that it costs about $1 billion to design a new vehicle from scratch. Toyota chief executive Akio Toyoda is on an aggressive new-product program, aiming at making the company’s vehicles more exciting. Toyota has also entered a number of less-expensive, joint vehicle development programs with competitors such as Subaru and BMW, and $1.2 billion could easily pay for several of those types of vehicles.
- Expanded research facilities. It’s never been more important for automakers to stay on top of safety and technological trends, but such research is expensive. Toyota spent $50 million alone on one safety research center near Ann Arbor, Mich., and it is trying to do research in all its major markets around the world. As the U.S. and other governments require steeper fuel economy standards, automakers have to spend money to achieve them.
Beyond such comparisons, the Toyota settlement sends a strong signal from the Obama Administration that most likely is meant for General Motors, which is embroiled in its own recall uproar.
It make take years for any similar type of deal involving GM vehicles. But now the Detroit carmaker, and its rivals, know how expensive it could be for them if the Justice Department finds they also engaged in a coverup, as Toyota admits to having done.