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Toyota Resolves Some of its Legal Problems

Unintended Acceleration of Toyota Models an Ethical Problem for Toyota

In 2009, Toyota encountered a problem with some of its models when news broke that there may be a sudden unintended acceleration on certain models. Toyota was hesitant at first to do anything, but after being forced to explain its actions in the U.S. Congress, the company did take corrective action. You might say that Toyota was nudged by congressional and public opinion to see that the rights of the driving public outweighed inaction. Toyota’s fix was to first cut the length of the accelerator pedals until replacement pedal assemblies become available and to install a brake-to-idle algorithm on affected models.

It all started five months before the new 2002 Lexus ES hit showroom floors when the company's U.S. engineers sent a test report to Toyota City in Japan: The luxury sedan shifted gears so roughly that it was "not acceptable for production." The warning was sent to Toyota Executive Vice President Katsuaki Watanabe on May 16, 2001. Days later, another Japanese executive sent an e-mail to top managers saying that despite misgivings among U.S. officials, the 2002 Lexus was "marginally acceptable for production." The new ES went on sale across the nation on October 1, 2001.

In years to come, thousands of Lexus buyers would discover firsthand that the vehicle's transmission problems, which caused it to hesitate when motorists hit the gas, or lurch forward unintentionally, were far from fixed. The 2002-2006 ES models would become the target of lawsuits, federal safety investigations and hundreds of consumer complaints, including claims of 49 injuries.

In an August 15, 2005, memo explaining the company’s position, a staff attorney wrote: "The objective will be to limit the number of vehicles to be serviced to those owners who complain and to limit the per-vehicle cost."

In 2010, Toyota was fined a record $16.4 million for delays in notifying federal safety officials about defects that could lead to sudden acceleration. The reaction of a Toyota spokesperson was: "Given the concerns raised by some customers about this drivability issue, we did not meet the very high customer satisfaction standards we set for ourselves. However, we fully stand behind the engineering and production quality of the vehicle, as well as our after-sale customer service and technical support."

On December 27, 2012, Toyota took the first step to resolving its legal problems. With a proposed payout of more than $1 billion, one major chapter of a nearly four-year legal saga that left Toyota Motor Corp. fighting hundreds of lawsuits and struggling with a tarnished image has ended, though another remains.

The settlement — unprecedented in its size according to a plaintiff's attorney — brings an end to claims from owners who said the value of their vehicles plunged after recalls over sudden and unintended acceleration.

Lawsuits claiming that the defects caused injury or death remain, with the first trial beginning in February unless another major deal comes first.

The courtroom claims began with a highway tragedy. A California Highway Patrol officer and three of his family members were killed in suburban San Diego in 2009 after their car, a Toyota-built Lexus, reached speeds of more than 120 mph, hit an SUV, launched off an embankment, rolled several times and burst into flames.

Investigators determined that a wrong-size floor mat trapped the accelerator and caused the crash.

That discovery, and the accident's grisliness, spurred a series of recalls involving more than 14 million vehicles and a flood of lawsuits soon followed, with numerous complaints of accelerations in several models, and brake defects with the Prius hybrid.

The Japanese automaker initially was blinded to the problem blaming instead driver error, faulty floor mats and stuck accelerator pedals for the problems.

The runaway Lexus case was settled separately for $10 million in 2010, before the cases were consolidated by U.S. District Judge James Selna.

Selna divided them into two categories: economic loss and wrongful death. Last week’s settlement only applies to the first group of lawsuits.

Toyota said it will take a one-time, $1.1 billion pre-tax charge against earnings to cover the estimated costs of the settlement. Berman said the total value of the deal is between $1.2 billion and $1.4 billion.

As part of the economic loss settlement, Toyota will offer cash payments from a pool of about $250 million to eligible customers who sold vehicles or turned in leased vehicles between September 2009 and December 2010.

The company also will launch a $250 million program for 16 million current owners to provide supplemental warranty coverage for certain vehicle components, and it will retrofit about 3.2 million vehicles with a brake override system. An override system is designed to ensure a car will stop when the brakes are applied, even if the accelerator pedal is depressed.

The settlement would also establish additional driver education programs and fund new research into advanced safety technologies.

"In keeping with our core principles, we have structured this agreement in ways that work to put our customers first and demonstrate that they can count on Toyota to stand behind our vehicles," said Christopher Reynolds, Toyota vice president and general counsel.

Toyota has been morally blind to the problem with unintended acceleration from the start. First trying to limit the company’s exposure; then blaming driver error; and finally trying to reclaim the “customer satisfaction” high road with self-serving statements. Clearly, the scandal has not materially affected sales in the US. The September 2012 sales pace was 14.94 million vehicles as calculated on an annualized basis, exceeding analyst estimates of 14.5 million, according to Autodata Corp. This was the highest rate since March 2008, about four months after the start of the recession of 2007-2009.

U.S. auto sales in November rose 13 percent to 1,188,865 new vehicles. Analysts, on average, had expected an increase of less than 9 percent.

Perhaps Toyota is immune to market share loss and lost sales revenue even when they violate basic standards of corporate responsibility and customer safety. Let’s hope Toyota has learned its lesson and will encourage ethical corporate behavior in the future.

Blog posted by Steven Mintz, aka Ethics Sage, on January 5, 2013