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Toyota Pays a $1.2 Billion Fine to U.S. Government

March 21, 2014

Toyota Motor Corp.’s massive 2009-2010 recall due to unintended acceleration still haunts the Japanese automaker until now, but the issue is about to be officially resolved with a major payout from the company.

On Wednesday, the U.S. Justice Department declared a criminal fraud charge against Toyota for misleading consumers about their complaints regarding their cars’ unintended acceleration. However, the charge will be deferred and dropped in exchange for a $1.2 billion fine.

As part of the settlement, the government will also appoint an independent monitor to review Toyota’s safety practices and to determine if the company abides by the other terms of the agreement. U.S. Attorney Preet Bharara, whose office was behind the recall investigation, confirmed at a news conference that the automaker is “effectively on probation for three years.”

The charge will be dismissed in 2017 if Toyota complies with the terms of the accord.

U.S. officials found Toyota liable for the case about the “sticky” accelerator pedals and floor mats, which prompted the large recall several years ago. “In its zeal to stanch bad publicity in 2009 and 2010, Toyota misled regulators, misled customers, and even misstated the facts to Congress,” Bharara said.

The once-revered auto manufacturer agreed to a so-called statement of facts, wherein it conceded to the concealing of safety problems which made its vehicles accelerate when these were supposed to slow down.

On Thursday, U.S. District Judge William Pauley approved the criminal charge settlement, stating that the case showed “reprehensible picture of corporate misconduct” and that it “demonstrates that corporate fraud can kill.” Toyota’s sudden acceleration issue is linked to at least five deaths.

$1.2 billion is the biggest penalty the U.S. government has ever imposed on an auto manufacturer. This fine is considerably hefty compared to the over $60 million in civil penalties levied by the National Highway Traffic Safety Administration (NHTSA) on Toyota for the recalls. The carmaker still faces many other private lawsuits over problems related to the safety issue.

Toyota will report $1.2 billion in after-tax charges against earnings in the fiscal year ending March 31, 2014 for costs related to the aforementioned settlement.

The billion dollar settlement officially closes the federal government’s four-year investigation. However, Toyota’s specific safety issue go way back, as early as 2007. The NHTSA started an inquiry after it received reports about the sudden acceleration of the Toyota-made Lexus ES350 model. The safety concern made headlines in 2009 when a highway patrolman and his family died in the aforementioned Lexus model. The 911 emergency call revealed that the vehicle’s accelerator was stuck and that the driver could not brake.

Toyota issued a recall that affected millions of vehicles, but the recall did not include all vehicles susceptible to the safety problems.

In 2013, the Japanese automaker agreed to a $1.6 billion settlement to resolve claims from Toyota owners that the value of their vehicles declined as a result of the negative publicity.

The settlement serves as a warning to General Motors, which is currently facing scrutiny over its handling of the long overdue recall of its vehicles. The faulty ignition switches which prompted the recall are linked to at least 12 deaths.

“My hope and expectation is that this resolution will serve as a model for how to approach future cases involving similarly situated companies,” U.S. Attorney General Eric Holder said in a news conference.

Photo credit: David Neubert/ Flickr/ CC BY

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