Toyota to shell out a billion to settle recall claims

The hits just keep on coming for Toyota. Hits against the company’s bank account, that is. The automaker will shell out more than $1.1 billion to settle claims over unintended acceleration in several models and faulty brakes in Prius hybrids. Details still have to be approved by the federal judge overseeing the cases. Literally hundreds of people have filed lawsuits against the carmaker. Toyota has blamed the accelerator problems on driver error, floor mats stuck under the pedal and balky accelerator linkages. The company has recalled 14 million vehicles to fix problems. Many deaths and injuries have been blamed on the defects.

This latest legal smackdown comes just about two weeks after Toyota was hit with a $17 million penalty for delaying recalls. That was the heaviest penalty the government could impose and no doubt the automaker shrugged it off, financially speaking. With a $3.2 billion third-quarter profit, $17 million is pocket change. This newest hit will have more of an impact. The Wall Street Journal reports the company will take a $1.1 billion charge against earnings this quarter. Total costs for the recalls and all the legal work associated then is expected to exceed $3 billion.

The $1.1 billion will pay for installation of new safety equipment in some Toyota vehicles and reimburse owners for expenses they incurred. This includes new braking systems with overrides that stop co-called runaway acceleration, compensatory payments for owners whose cars can’t be upgraded and extended warranties. As is always the case in these circumstances, Toyota admits no wrongdoing, and the company spares itself the expense, spectacle, and uncertain outcome of a jury trial. Still hanging fire are two other legal actions. One is an unfair business practices case brought by 28 state attorneys general and a consumer protection and fraud suit from Orange County, California. The proposed settlement does not cover those.

Still left unanswered is the question of what caused the unintended acceleration and stuck gas pedal events that attracted so much media attention. Federal investigators could not find faults with the electronic control systems but did note that Toyota had more of these episodes than any other carmaker. Toyota stands by its claim that floor mats getting jammed under the accelerator are to blame. Despite the negative publicity and recalls, Toyota’s sales are up 29 percent over last year and the company is poised to become the top seller in the world.

Source: Reuters, “Toyota seeks to settle acceleration case for $1.1 billion,” Deepa Seetharaman, Dec. 27, 2012