Toyota reaches $1.2 billion settlement to end probe of accelerator problems

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. (The Associated Press)

Toyota Motor lied to regulators, Congress and the public for years about the sudden acceleration of its vehicles, a deception that caused the world’s largest automaker on Wednesday to be hit with a $1.2 billion Justice Department fine.

Prosecutors say Toyota’s efforts to conceal the problem and protect its corporate image led to a series of fatalities that could have been prevented. The settlement, which amounts to more than a third of Toyota’s 2013 profit, is being called the largest criminal penalty imposed on a car company in U.S. history.

Toyota says in the settlement that it misled Americans by making deceptive statements about the safety problems that caused its vehicles to speed up uncontrollably, a stark admission for a company that has built its brand on safety and reliability.

Early on, Toyota suggested that driver error was to blame, saying that some people may have hit the gas when they meant to hit the brake. Even after issuing recalls to address problematic floor mats that in some cases pinned down accelerators, the company hid a flawed gas pedal design that it knew did the same thing, according to documents accompanying the agreement.

The deal is a victory for the government and could serve as a model for a the case against General Motors, which is under investigation by Congress, safety regulators and federal prosecutors for taking more than a decade to issue a recall for an ignition-switch problem it has linked to 31 accidents and 12 deaths.

“Companies that make inherently dangerous products must be maximally transparent, not two-faced,” said Preet Bharara, U.S. attorney for the Southern District of New York, who led the Toyota investigation and — according to a law enforcement source who spoke on the condition of anonymity because he was not authorized to discuss the topic — has launched a preliminary criminal probe of GM. “That is why we have undertaken this enforcement action. And the entire auto industry should take notice.”

Safety fears erupted around some of Toyota’s most popular models in 2009, when California Highway Patrol officer Mark Saylor and three family members were killed in a high-speed crash caused by the unintended acceleration of his car. The terrifying episode was captured in a 911 emergency call in which Saylor’s brother-in-law described speeding out of control in a Lexus at more than 125 mph before the car crashed, killing all four occupants.

Relatives of the Saylor family, who settled a case against Toyota for an undisclosed amount in 2010, declined through their attorney to comment on the new settlement.

After the accident, Toyota eventually recalled millions of vehicles — one of the largest recalls in the history of the automotive industry. But federal prosecutors found that the company had not come completely clean.

The company assured the public that the “root cause” of unintended acceleration had been addressed by the recall, blaming floor mats that accidentally trapped the depressed gas pedals of cars and trucks.

But Toyota knew that models it had not recalled had similar floor-mat problems, the agreement said. Also, the company hid from federal regulators a second cause of unintended acceleration in its vehicles: a sticky gas pedal.

The problem was caused by plastic material inside the pedal that could cause the accelerator to become stuck in a partially depressed position. The pedals were installed in several models, including the Camry, the Matrix, the Corolla and the Avalon.

The problem had surfaced in Toyota vehicles in Europe in 2008, causing instances of uncontrolled acceleration. In early 2009, the company gave European Toyota distributors information about the sticky pedals along with instructions to replace them if customers complained.

Meanwhile, rather than issuing a recall, the company quietly directed its pedal supplier to change parts in Europe and made plans to roll out the same change in the United States.

By then, the problem had already cropped up in cars sold in the United States, according to the documents. At nearly the same time as the highly publicized San Diego accident, Toyota staffers sent a memo to the company’s headquarters in Japan warning of an unintended-acceleration problem apart from the one caused by the floor mats.

For several months, Toyota received more evidence of the pedal problem and quietly made plans to address it without informing federal safety officials as required by law. Concerned that federal officials would learn about these plans, the company canceled the change in pedal design and communicated that change orally rather than in writing, so there would be no paper trail.

After more instances of sticky pedals came to the company’s attention in 2009, executives decided to disclose the issue to federal regulators and issue a new recall. But the deception did not end there. After the recall was completed, the company produced an inaccurate timeline and submitted it to federal regulators and Congress, making it appear as if the company had acted quickly to address the sticky-pedal issue.

“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 H. Holder Jr. said at a news conference announcing the settlement.

As part of the deal, Toyota has entered into what is called a ­deferred-prosecution agreement that gives federal prosecutors 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.

Christopher P. Reynolds, chief legal officer at Toyota Motor North America, said the company took full responsibility for the effects of its actions on consumers at the time of the recalls.

“We have made fundamental changes across our global operations to become a more responsive company,” he said in a statement. “Entering this agreement, while difficult, is a major step toward putting this unfortunate chapter behind us.”

In addition to the $1.2 billion fine, which will go into the government’s coffers, Toyota faces nearly 400 wrongful-death and personal-injury lawsuits. It has settled at least seven lawsuits in the past few months.

“The Justice Department settlement with Toyota is a complete game-changer,” said Clarence Ditlow, executive director of the Center for Auto Safety, a watchdog group. “Until today, automakers faced insignificant fines and no criminal penalties under the Vehicle Safety Act. Today’s fine of $1.2 billion against Toyota makes the $35 million maximum fine that [federal regulators] can impose seem like chump change.”

Still, 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 coordinated lying 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 David H. Peirez, a partner at the law firm of Reisman, Peirez, Reisman and Capobianco. “Deferred-prosecution agreements are a joke — all they defer is a jail sentence, but not the next recall.”

Danielle Douglas covers the banking industry for The Washington Post.
Michael A. Fletcher is a national economics correspondent, writing about unemployment, state and municipal debt, the evolving job market and the auto industry.
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