Shades of GM: Toyota to Pay $1.2 Billion in Fines

Last Wednesday, March 19, Attorney General Eric Holder announced a criminal penalty of $1.2 billion against Toyota for concealing information about safety defects in its vehicles from consumers and regulators. The fine represents the largest ever levied against an automaker.

Hold On and Pray

Federal regulators had opened the inquiry into Toyota in 2007 after receiving multiple reports of unintended acceleration problems in the Lexus ES350 model. Then in 2009, the safety defect gained widespread notoriety as a nation listened in horror to the replay of a 911 call made by a frantic highway patrolman, driving with his family in a loaner Lexus, minutes before all being killed in a San Diego crash.

“We’re in a Lexus,” screamed the brother-in-law of the patrolman, “and we’re going north on 125 and our accelerator is stuck…there’s no brakes…hold on and pray…”

The chilling call ends with the sound of a cataclysmic crash.

Shortly after that incident—and facing a massive PR crisis—Toyota voluntarily recalled 3.8 million vehicles due to ill-fitting floor mats that could cause the accelerator to stick.

The company insisted that there was no vehicle-based cause for the problems.

NHTSA Complicity…Once Again

The National Highway Traffic Safety Administration (NHTSA)—that federal organization dedicated to saving lives, preventing injuries and reducing motor vehicle crashes (yes, the same agency now under congressional investigation itself for its prolonged delay to act on reports of GM’s faulty ignition switch)—denied a petition to reopen a number of investigations involving unintended acceleration problems, claiming that the issue had already been thoroughly investigated.  NHTSA said that any investigation on its part would not surface anything new. (So much for the value of independent inquiry…)

In its November 2009 recall notice, Toyota insinuated that the floor mats were solely at fault for the acceleration problems, stating, “The question of unintended acceleration involving Toyota and Lexus vehicles has been repeatedly and thoroughly investigated by NHTSA, without any finding of defect other than the risk from an unsecured or incompatible driver’s floor mat”.

The NHTSA—whose organizational culture in recent years seems to be more geared towards maintaining chummy relations with automakers, and then CYA’ing when called out on it versus protecting the consumers it purports to represent—issued a quick rebuttal stating that the matter was not closed until Toyota had effectively addressed the defect.

Anybody and Everybody’s Fault: Just Not Toyota’s

In January 2010, Toyota recalled millions more of its vehicles to fix problems that could cause the accelerator to stick even without the floor mat. The recall included the RAV4, Corolla, Camry and Highlander models as well as certain Lexus and Pontiac models. Since 2000, 21 deaths had been tied to the sticking accelerator, faulty brakes and/or ill-fitting floor mats, but the National Highway Traffic Safety Administration (NHTSA) revised that number upward to 37 at the time of the recall.

The number of alleged victims swelled in the wake of the recall, so much so that Toyota and even government officials were publicly skeptical about the credibility of complainants. There seemed to be a prevalent attitude that placed responsibility for the problem on almost anybody—negligent drivers, local mechanics who had not fixed the problem correctly, etc.—in other words, anybody and everybody but Toyota itself. The media, who provided widespread coverage of the recall, was singled out in particular as fanning the firestorm of complaints with its unrelenting scrutiny.

Revelations of an Incomplete Report and Flawed Conclusion

Between 2010 and 2012, Toyota paid fines of more than $66 million for delays in reporting problems. During this same period of time, Toyota continued to aggressively defend its vehicles against numerous wrongful death and injury claims, always contending that the problems were mechanical, not electrical in origin.

In 2011, the NHTSA—in collaboration with NASA—released a report on Toyota’s throttle system. No electronic defect had been found. The report ended: “Our conclusion is Toyota’s problems were mechanical, not electrical.” This included sticking accelerator pedals and pedals caught under floor mats.

Toyota had prevailed once more. However, in October 2013, a jury ruled against Toyota after hearing testimony that NASA had not been able to complete its examination of the electronic throttle system, and that a single bit flip—which could be caused by cosmic rays—was capable of precipitating unintended acceleration. Furthermore, the expert witness testified that the run-time stack of the real-time operating system was not sufficiently large, and that it was possible for the stack to grow so large as to overwrite critical data, resulting in unintended acceleration. With this revelation, Toyota had to enter into settlement discussions with plaintiffs.

Why did it take an independent expert to discover these problems when there is a federal organization dedicated to investigating safety defects? In fact, a quick review of the 2011 NHTSA’s $877.6 million budget revealed a $10 million line item for investigating safety defects alone!

In 2013, Toyota agreed to pay more than $1 billion to owners and lessees of cars who claimed to have suffered economic losses due to the reduced valuation of its cars. It still faces a number of wrongful death and injury cases which have been consolidated in California and federal courts.

A Smoking Gun

Investigators working on the Toyota case discovered internal documents that acknowledged serious problems with its vehicles. These documents were compared to the company’s public statements downplaying problems. “That’s when we knew for sure that this was a criminal fraud case,” the official said. “That’s what you’d call a smoking gun.”

Shades of GM

If this chronicle reminds you of the current investigation against GM and that company’s 13-year legacy of foot-dragging in the face of mounting casualty tolls and incontrovertible evidence of problems with a faulty ignition switch causing nondeployment of air bags, you’re certainly not alone. At one point during the press conference on Wednesday, Preet Bharara, U.S. Attorney for the Southern District of New York whose office handled the Toyota case, slipped and said, “General Motors” instead of “Toyota”, evoking smirks and suppressed laughter from reporters and officials.

Mr. Holder carefully sidestepped mentioning GM, although he made it clear that the Toyota case would be upheld as a model for the Justice Department’s newly-invigorated approach to automotive safety.

“Other car companies should not repeat Toyota’s mistake,” Mr. Holder said. “A recall may damage a company’s reputation, but deceiving your customers makes that damage far more lasting.”

After learning the details of the penalty, former General Motors Vice Chairman Robert Lutz commented in an interview on PBS: “Even though it’s happening to a major Japanese competitor, I take no joy in it whatsoever.

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