Toyota Agrees to $1.2 Billion Settlement, Ending Probe

Report: U.S., Toyota May Reach Settlement in Probe
David Zalubowski/AP
By Del Quentin Wilber

Toyota Motor (TM) has agreed to pay a $1.2 billion penalty to end a U.S. criminal probe into sudden unintended acceleration that led to the recall of more than 10 million vehicles.

As part of the deal, Toyota will fully admit wrongdoing, pay the penalty and submit to "rigorous" review by an independent monitor, Attorney General Eric Holder said. Toyota also will be charged with wire fraud, with the prosecution deferred for three years as long as the company continues cooperation with authorities.

"Toyota intentionally concealed information and misled the public," Holder said today at a Justice Department news conference. "Toyota confronted a public-safety emergency as if it were a simple public-relations problem."

The settlement represents the largest criminal penalty imposed on an automaker in the U.S., he said.

Christopher P. Reynolds, chief legal officer for Toyota Motor North America, said the company "took full responsibility" for its actions.

"In the more than four years since these recalls, we have gone back to basics at Toyota to put our customers first," he said in a statement. "We have made fundamental changes across our global operations to become a more responsive company -- listening better to our customers' needs and proactively taking action to serve them."

In this Nov. 5, 2010 file photo released by the Utah Highway Patrol, a Toyota Camry is... Read More
Toyota's American depositary receipts fell 1 percent to $108.68 at the close in New York. The ADRs have fallen 11 percent this year, while the NYSE Composite Index has slipped 0.4 percent.

Company Reputation

The recalls blemished Toyota's reputation for quality that spurred its rise to become the world's top-selling automaker, a title it relinquished for one year to General Motors (GM) A settlement would put Toyota a step closer to resolving legal fallout of those recalls as GM faces probes into how it handled defective ignition switches blamed for at least 12 deaths.

U.S. regulators and officials, including the Federal Bureau of Investigation's New York office, according to a person familiar with the matter, are probing GM after the recall of 1.6 million Chevrolet Cobalts and other small-car models linked to the fatalities. On March 17, GM said it's recalling 1.55 million vans, sedans and sport utility vehicles, citing concerns over brakes, seat belts and air bags.

Holder, while refusing to confirm nor deny any federal investigation into GM, said the Toyota case will be a model for the government's approach to such issues.

Warning Others

"Other car companies should not repeat Toyota's mistake: A recall may damage a company's reputation, but deceiving your customers makes that damage far more lasting," he said.

U.S. Attorney for Southern District of New York Preet Bharara, %VIRTUAL-article-sponsoredlinks%who joined holder at the news conference, said the settlement effectively puts Toyota on probation for three years while the way it deals with safety issues is monitored.

Bharara said it was particularly outrageous that "at a maximum moment of crisis when people in America were really concerned were they driving safe cars or not," Toyota was saying "loudly and forcefully, on television and in press releases and on their website, at every juncture, to reassure the public and protect its brand: 'Don't worry about it, we've got it covered, we have gotten to the root cause of the problem.' And that was false."

Toyota recalled more than 10 million vehicles worldwide in 2009 and 2010 following complaints of sudden, unintended acceleration. The Toyota City, Japan-based company made modifications to gas pedals and floor mats that were prone to shifting around and jamming the accelerator. Toyota also installed brake override software on recalled models and began making the systems standard on new vehicles.

Misleading Statements

Holder said that Toyota failed to promptly disclose and correct safety issues about which the company was aware. Toyota instead made misleading public statements and gave inaccurate information to members of Congress, he said. The company also concealed from regulators the extent of problems some customers had with sticking gas pedals and unsecured floor mats, he said.

In addition to the criminal probe by the Manhattan U.S. Attorney's office and the New York office of the FBI, Toyota's recalls also led to lawsuits claiming defects harmed the value of Toyota vehicles or caused accidents leading to death and injury. Toyota settled lawsuits brought by car owners who claimed economic losses for about $1.6 billion.


Toyota last year agreed to try to resolve the personal injury and wrongful death lawsuits that were brought in the wake of the recalls.

In a March 17 status report filed in federal court in Santa Ana, Calif., Toyota and lawyers representing the plaintiffs said they had reached agreements in principle to settle 131 cases. The carmaker is trying to settle more than 300 cases, according to the filing.

Terms of the settlements weren't disclosed.

The economic-loss agreement and today's penalty bring the automaker's legal payouts to almost $3 billion. Toyota may earn $19 billion in the 2014 fiscal year, the average of analyst estimates.

Toyota surrendered global auto sales leadership to Detroit-based GM in 2011 after Japan's tsunami and floods in Thailand disrupted production. The automaker has regained the global sales crown the past two years and is again ranked at or near the top of automotive quality ratings.

"The reality is the consumer has moved on from Toyota a long time ago," said Alan Baum, an analyst at Baum & Associates in West Bloomfield, Michigan. "In the market this had a six to nine month impact. Toyota has recovered, and it had some advantages because of its consumer loyalty. In the long term, it didn't necessarily affect the volume of vehicles sold by the company, but it may have affected the price they could achieve."

US Announces $1.2B Toyota Settlement
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