Thursday, December 27, 2012
Toyota seeks to settle acceleration cases for $1.1 billion
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PRODUCTS,
TECH WORLD,
TechLife,
TECHNOLOGY
By Deepa Seetharaman and Bernie Woodall
Toyota Motor Corp plans to spend $1.1 billion to resolve sweeping U.S. class-action litigation over claims that millions of its vehicles accelerate unintentionally, as the Japanese automaker looks to turn the page on the biggest safety crisis in its history.
About 16 million Toyota, Lexus
and Scion vehicles sold in the United States spanning the model years
1998 to 2010 are covered by the action, according to court filings made
public on Wednesday. Thirty nameplates are affected, including the
top-selling Toyota Camry midsize sedan and Corolla compact car.
A Toyota Logo is pictured on a Prius car at a Toyota dealership in west London February 9, 2010.
Credit: Reuters/Toby Melville
Toyota,
the No. 3 automaker in the U.S. market, admitted no fault in proposing
the settlement, one of the largest of U.S. mass class-action litigation
in the automotive sector. Investors snapped up shares of Toyota and its
stock rose 2 percent in early trading.
"This
was a difficult decision, especially since reliable scientific evidence
and multiple independent evaluations have confirmed the safety of
Toyota's electronic throttle control systems," Christopher Reynolds,
general counsel for Toyota Motor Sales, USA, said in a statement.
"However,
we concluded that turning the page on this legacy legal issue through
the positive steps we are taking is in the best interests of the
company, our employees, our dealers and, most of all, our customers."
The
figure eclipses other settlements in the auto industry including
Bridgestone Corp's $240 million payout to Ford Motor Co in 2005 over
Ford's massive Firestone tire safety recall in 2001. Ford replaced 13
million Firestone tires, installed mostly as original equipment on the
company's popular Explorer SUV, in one of the biggest recalls in U.S.
history.
Toyota said it would take a
one-time pretax charge of $1.1 billion to cover the costs. The company
said it plans to book the charge as operating expenses in its
October-December third quarter.
Hagens
Berman, the law firm representing Toyota owners who brought the lawsuit
in 2010, issued a statement saying that the settlement was valued
between $1.2 billion and $1.4 billion. In a memo filed in court, the
lawyers said the settlement was "a landmark, if not a record, settlement
in automobile defect class action litigation in the United States."
Toyota's
recall of more than 10 million vehicles between 2009 and 2011 hurt the
company's reputation for reliability and safety. Toyota faces an
estimated $10 billion in potential civil liability in U.S. courts, for
consumer fraud, personal injury and wrongful death claims stemming from
acceleration complaints.
Wednesday's $1.1. billion settlement does not cover the wrongful death or injury claims.
LINGERING EFFECTS
The effect of the recalls on sales and loyalty remains "difficult to isolate," IHS Automotive analyst Rebecca Lindland said.
"A
lot of their growth through the early 2000s were first-time Toyota
buyers," she said. "Those are the people that were most vulnerable to
saying, 'I'll never own a Toyota again.' The long term effects won't
fully be realized until all of the cars that have been impacted by the
recall have been retired."
The
biggest safety crisis in Toyota's history began to get public notice in
August 2009 when an off-duty California Highway Patrol officer Mark
Saylor and three members of his family were killed in a Lexus ES 350
that crashed at a high speed.
A
separate lawsuit over the death of the Saylor family was settled out of
court. A handful of wrongful death and personal injury cases are still
pending, but the vast majority of the litigation over this issue will be
finished if the proposed settlement is approved, said a person with
knowledge of the remaining lawsuits who wished to remain anonymous.
Within
a half year of the Saylor family crash, Toyota President Akio Toyoda
and other company executives were questioned in a high-profile U.S.
Congressional hearing, and Toyoda made a public apology.
Toyota maintained all along that its electronic throttle control system was not at fault. It reiterated that on Wednesday.
A
study by U.S. safety regulator the National Highway Traffic Safety
Administration and NASA found no link between the reports of unintended
acceleration and Toyota's electronic throttle control system.
INCREASINGLY COMMON
The
settlement, which must be approved by a California federal judge,
includes direct payments to customers as well as the installation of a
brake override system in more than 2.7 million vehicles, according to
the settlement agreement filed in court.
The
terms include a $250 million fund for former Toyota owners who sold
vehicles at reduced prices and a separate $250 million fund for owners
not eligible for the brake override system.
Attorneys
for the plaintiffs are slated to receive up to $200 million in fees and
$27 million in costs, according to court documents.
Richard
Cupp, a professor at Pepperdine University School of Law, said the
settlement was large for the automotive sector but was dwarfed by other
litigation involving economic loss claims. State cases against the
tobacco industry, for instance, amounted to more than $200 billion.
"That
could mean that lawsuits like these could become increasingly common,
even where there is not provable physical injury on large scale," Cupp
said.
The case is In re: Toyota
Motor Corp. Unintended Acceleration Marketing, Sales Practices and
Products Liability Litigation, U.S. District Court, Central District of
California, No. 10-ml-02151.
(Reporting
by Deepa Seetharaman and Bernie Woodall; Additional reporting by Dan
Levine and Jonathan Stempel, and Yoko Kubota in Tokyo; Editing by Dan
Grebler, Cynthia Osterman and Chris Gallagher)
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