RPR&C In The Media

By Danielle Douglas

Attorney General Eric Holder announced the findings of a Department of Justice investigation into the Toyota recall of vehicles with dangerous floor mat issues during a news conference on Wednesday. DOJ ordered Toyota to pay a fine of $1.2 billion. 

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.

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.

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 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 defense 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.

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.

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.

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.

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.

“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.

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.

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.”

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.

“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.”

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.

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.

“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.

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.

“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.”

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.

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.

“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.