Record fine against Toyota a balance sheet rounding error

The National Highway Traffic Safety Administration has decided to play hardball with the Toyota Motor Corp. by slapping the company with a record fine for safety violations. The carmaker will pay $17.2 million for delaying a safety recall and not reporting other problems in a timely manner. The violations included floor mat problems that could jam the accelerator and send the car speeding out of control. Sounds like a steep penalty until you consider Toyota’s profit for the third quarter alone was $3.2 billion. That’s about $1.46 million an hour, so it will take just under 12 hours to pay off the fine, which equals 0.0053125 percent of Toyota’s quarterly profit.

The fine is the largest allowed by law, so it’s not like the federal government isn’t trying. Toyota has been penalized four times in the last two years, and in 2010 alone paid out $48.8 million to settle three violations. For those keeping count at home, that took about 33 hours and 15 minutes worth of profits out of shareholder’s pockets. Some safety experts wonder if such puny financial penalties have any real impact, or if the car companies see them as a cost of doing business.

Toyota admits no wrongdoing, and promises to collect more data faster and get it to the government sooner. The company says it settled to avoid expensive litigation, and insisted that it works closely with NHTSA to keep drivers safe. Toyota has recalled over 14 million vehicles to fix floor mat and sticky gas pedal problems. The company is supposed to report significant problems within five days, but it delayed notification about the floor mat-gas pedal interference for more than a month. NHTSA says “every moment of delay” puts drivers at risk of death or injury.

Starting next year the maximum fine NHTSA can levy rises to $35 million, but these are civil penalties, not criminal. So long as Toyota is willing to pull out the checkbook and buy its way out of trouble, company officials have little incentive to change the way they do business.

Source: The Associated Press, “U.S. fines Toyota for delayed safety reports,” Tom Krisher, Dec, 18, 2012