The settlement between the Justice Department and Toyota includes
an admission by the auto manufacturer that it misled American
consumers about two different problems that caused cars to
accelerate even as drivers tried to slow them down.
The agreement comes as General Motors is also under investigation
over its handling of an ignition switch failure linked to a dozen
deaths. GM last month recalled more than 1.6 million vehicles 13
years after first noticing the issue. The payment Toyota agreed to
marks the largest such penalty levied by the United States on an
auto company, officials said.
"My hope and expectation is that this resolution will serve as a
model for how to approach future cases involving similarly situated
companies," Attorney General Eric Holder told a news conference.
Holder declined to discuss GM specifically but Preet Bharara, the
chief U.S. prosecutor in Manhattan who joined him at the news
conference, made a verbal slip and referred to the case against
Toyota as one against GM. He quickly corrected himself.
The Toyota settlement marked a huge victory for safety advocates who
fought for years for criminal prosecution of automakers over safety
Although no individuals at Toyota were charged, the case was the
first federal criminal case of its kind since the passage of the
first U.S. auto safety law 48 years ago.
"It means at the highest levels of the auto company, they have to
worry about going to jail if they don't report a defect," said Joan
Claybrook, a former president of the nonprofit Public Citizen who
favors stricter safety standards.
Toyota President Akio Toyoda said the company has been working hard
to change itself in the past few years.
"It was a significant turning point that allowed us to go back to
our basic philosophy of prioritizing our customers," he told
reporters in Tokyo on Thursday.
The Japanese carmaker's North American legal chief, Christopher
Reynolds, said in a statement that the settlement serves to put an
"unfortunate chapter" behind the company.
U.S. District Judge William Pauley, who must approve the deferred
prosecution agreement that is a part of the pact, has scheduled a
hearing for Thursday afternoon in New York regarding the settlement.
Shares in Toyota have dropped 1.2 percent as of 12:40 p.m. Japan
time (0340 GMT), roughly in line with the benchmark Nikkei that fell
"EFFECTIVELY ON PROBATION"
The settlement resolves issues that have dogged the company since at
least 2007 and have been linked to at least five deaths. Toyota
still faces hundreds of private lawsuits.
Prosecutors agreed to defer and drop the criminal charges against
Toyota if it abides by terms, including allowing an independent
monitor to review the company's safety practices.
The monitor, who will be approved by the U.S. government but paid
for by the company, will be able to interview executives, take part
in some meetings on safety issues and will have a toll-free number
for Toyota employees to anonymously report violations.
The automaker must report defects to regulators within five days of
determining the problems could affect safety.
Toyota is "effectively on probation for three years," said Bharara,
whose office conducted the investigation. "It cared more about
savings than safety and more about its own brand and bottom line
than the truth."
John Alan James, a governance professor at Pace University in New
York, said such provisions in the Toyota deal could serve as a
blueprint used by prosecutors in any deal with GM. "The Department
of Justice enforcement division is all lawyers, and lawyers live on
precedents," he said.
The U.S. Attorney's office in Manhattan is investigating GM's
handling of its ignition-switch recall. GM faces probes by Congress
and safety regulators at the National Highway Traffic Safety
Administration, as well as lawsuits from GM drivers who say their
cars lost value because of the defects.
GM Chief Executive Mary Barra has been credited for apologizing
quickly for the slow recall and promising to focus on safety. Toyota
had played down the problems.
However, GM is still under fire for failing to address the defective
switches when they were discovered.
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A GM spokesman declined to comment on whether the Toyota settlement
could be a model for his company.
GM drivers have described accidents dating back to the mid-2000s in
which engines spontaneously shut off, sending cars careening and
disabling airbags before the vehicles crashed. Toyota drivers, by
comparison, found themselves in vehicles cruising to speeds higher
than 100 miles per hour while the brake pedals were functionally
The 1966 Motor Vehicle Safety Act first required manufacturers of
cars and trucks to notify the public of safety problems and to act
if they find a defect.
Congress has amended the law several times but did not add criminal
penalties until 2000, and even then it was assumed bringing a case
would be difficult.
To prosecute Toyota, the Justice Department worked around those
requirements by bringing its case under a wire fraud law that they
use in cases from securities fraud to political corruption.
A document prosecutors filed in U.S. District Court in Manhattan
says Toyota "defrauded U.S. consumers into purchasing its products
by concealing information and making misleading statements about
Holder said federal prosecutors in New York "have been appropriately
creative in crafting these mechanisms that can be used in similar
kinds of cases to hold companies responsible for their actions."
Toyota said it would take a $1.2 billion after-tax charge for the
settlement in the fiscal year ending March 31.
Toyota dealers said customers have moved on. "It's good to get this
behind us, but we don't hear about this at all from consumers," said
Carl Swope, a Toyota dealer in Kentucky.
"LIES REPEATEDLY TOLD"
The settlement resolves a four-year investigation by U.S.
authorities, led by the New York FBI, which conducted more than 70
Federal regulators opened the 2007 inquiry into Toyota after reports
of unintended acceleration by the Lexus ES350 model.
The problems gained public attention two years later when a highway
patrolman and his family were killed in an accident in San Diego
that involved that model of Lexus.
A 911 emergency call recounted the family's last minutes: "We're in
a Lexus ... and we're going north on 125 and our accelerator is
stuck ... there's no brakes ... hold on and pray ..." The call ends
with the sound of it crashing, prosecutors said.
Toyota responded with a recall of millions of vehicles but left on
the road some vehicles including the top-selling Corolla which was
described within the company as having among the worst problems with
floor mats that trapped acceleration pedals.
The company also concealed from the public and regulators a separate
problem with the acceleration pedal itself.
In fact, the company canceled a design change to address the issue
in the wake of the San Diego accident.
"Idiots! Someone will go to jail if lies are repeatedly told. I
can't support this," one Toyota employee said after a meeting with
regulators according to a statement of facts filed with the
That employee's comments came after he reviewed reports from Europe
showing the severity of the problem.
(Additional reporting by Julia Edwards in Washington, Yoko Kubota in
Tokyo, and Emily Flitter; editing by Doina Chiacu, Bernadette Baum,
Peter Henderson and Matt Driskill)
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