Toyota seeks to settle acceleration case for $1.1 billion

DETROIT Thu Dec 27, 2012 12:55am EST

A Toyota Logo is pictured on a Prius car at a Toyota dealership in west London February 9, 2010. REUTERS/Toby Melville

A Toyota Logo is pictured on a Prius car at a Toyota dealership in west London February 9, 2010.

Credit: Reuters/Toby Melville

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DETROIT (Reuters) - Toyota Motor Corp has agreed to spend $1.1 billion to settle sweeping U.S. class-action litigation over claims that millions of its vehicles accelerate unintentionally, as the Japanese automaker seeks to move past the biggest safety crisis in its history.

Shares of Toyota rose nearly 3 percent in Tokyo following the news, with some investors saying the settlement removed one uncertainty for the company and looked manageable given its improving sales outlook and a weaker yen.

The proposed settlement will compensate customers for economic losses related to possible safety defects in Toyota vehicles, covering most of the litigation involving unintended acceleration, although it does not cover claims for wrongful death or injuries.

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.

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.

"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.

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 said it would take a one-time pretax charge of $1.1 billion to cover the costs. The company said it planned to book the charge as operating expenses in its October-December third quarter.

"This is positive, as it removes the factor that was the biggest concern when it came to lawsuits ... Because Toyota's absolute numbers are very big when it comes to profits, it's hardly going to have an impact," said Koji Endo, an autos analyst at Advanced Research in Tokyo.

Toyota may be able to offset costs with a rise in its profits as the yen weakens, he added. Toyota's operating profit increases by 35 billion yen for every one-yen rise in the value of the dollar. The automaker has forecast an operating profit of 1.05 trillion yen ($12.3 billion) for the financial year ending in March 2013.

Toyota shares rose 2.7 percent, compared with a 1 percent rise in Japan's benchmark Nikkei index.

LINGERING EFFECTS

Toyota's recall of more than 10 million vehicles between 2009 and 2011 hurt the company's reputation for reliability and safety.

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 unintended acceleration 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, and reiterated that on Wednesday. It has blamed ill-fitting floor mats and sticky gas pedals for the problem.

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. ($1 = 85.6700 Japanese yen)

(Additional reporting by Dan Levine , onathan Stempel and Yoko Kubota; Editing by Dan Grebler, Cynthia Osterman and Chris Gallagher)

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Comments (7)
montysimmons wrote:
The acceleration problem is real and I was able to prove same from personal experience.

My mother owned a Toyota Corolla, 2009 or 2010 – new at the time.

One day she was parking at our local school and the car accelerated out of control as she entered a parking place. As a result, the car went over a grassy area and left very distinctive tire marks in the grass. I have photos of the marks. She was able to stop the car before and damage was done and without injury. But she never wantd to drive the car again and she sold it soon after and purchased an Honda Accord.

She claims she had her foot on the breaks the entire time as she slowed to park but the car still accelerated forward through the grass.

I was thinking she simply hit the gas instead of the break somehow or perhaps her foot was on the break and the gas at the same time.

So I decided to put my ideas to the test.

I got into the car and pulled into the parking spot next to the one she had accelerated through. I then put my foot on the gas and the break at the same time to accelerate through the parking space and the grass.

First, it is very difficult to accelerate in such car while pressing hard on the breaks. The car will move but not that good and the tire marks I made in the grass were not the same as her tire marks – noticeably different.

So I next simply gave the car full throttle and accelerated through a parking place thorough the grass. Tire marks in the grass were noticeably different from the ones my mother made – much more spinning.

I tried several variations of break v throttle but I could not reproduce my mother’s tire marks. Something wired had to have happened.

My guess, I suspect there is a firmware code issue, perhaps something to do with the cruise control firmware code.

Consider this:

Suppose you set your cruise control to 65 mph while driving on the highway which automatically shuts off when you press your breaks to slow down. Then as you pull into a parking place, for example, the car’s firmware enters some random state where the cruise control incorrectly engages and tries to get the car back to 65 mph and pressing the breaks does not shut off the cruise control. Ouch. Could be.

But the car’s breaks are normally strong enough to stop the car from accelerating. So something very strange is going on here.

Whatever the reason, the problem is real.

Dec 27, 2012 4:45am EST  --  Report as abuse
Alex77 wrote:
The modern class action suit where lawyers collect all the money and nothing is resolved outside of closed door meeting does nothing to forward excellence or safety in society. The previous comment is as logical as it gets and what do we have in return from the company and lawyers – total silence. This kind of closed-door culture appears to have sank the entire nuclear power industry of Japan. This type of silence and feeble payoff routine is not good for investors, taxpayers, consumers, or the interests of the nations involved.

Dec 27, 2012 7:43am EST  --  Report as abuse
USA4 wrote:
This is the modern day equivalent of the Salem Witch Trials. Irrational claims and fears not supported by anything other than what people want to believe. Of course, in this case, the media and trial lawyers did everything they could to support the ruse.

Dec 27, 2012 9:15am EST  --  Report as abuse
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