(Adds Toyota President Akio Toyoda's comments, information on
U.S. District Judge hearing, Toyota share move)
By Aruna Viswanatha, David Ingram and Ben Klayman
WASHINGTON/DETROIT, March 19 Toyota Motor Corp
will pay a record $1.2 billion to resolve a criminal
probe into safety issues, in a deal that could serve as a
template for how U.S. authorities approach a similar
investigation into General Motors Co.
The settlement between the Justice Department and Toyota
includes an admission by the auto manufacturer that it misled
American consumers about two different problems that caused cars
to accelerate even as drivers tried to slow them down.
The agreement comes as General Motors is also under
investigation over its handling of an ignition switch failure
linked to a dozen deaths. GM last month recalled more than 1.6
million vehicles 13 years after first noticing the issue. The
payment Toyota agreed to marks the largest such penalty levied
by the United States on an auto company, officials said.
"My hope and expectation is that this resolution will serve
as a model for how to approach future cases involving similarly
situated companies," Attorney General Eric Holder told a news
Holder declined to discuss GM specifically but Preet
Bharara, the chief U.S. prosecutor in Manhattan who joined him
at the news conference, made a verbal slip and referred to the
case against Toyota as one against GM. He quickly corrected
The Toyota settlement marked a huge victory for safety
advocates who fought for years for criminal prosecution of
automakers over safety violations.
Although no individuals at Toyota were charged, the case was
the first federal criminal case of its kind since the passage of
the first U.S. auto safety law 48 years ago.
"It means at the highest levels of the auto company, they
have to worry about going to jail if they don't report a
defect," said Joan Claybrook, a former president of the
nonprofit Public Citizen who favors stricter safety standards.
Toyota President Akio Toyoda said the company has been
working hard to change itself in the past few years.
"It was a significant turning point that allowed us to go
back to our basic philosophy of prioritising our customers," he
told reporters in Tokyo on Thursday.
The Japanese carmaker's North American legal chief,
Christopher Reynolds, said in a statement that the settlement
serves to put an "unfortunate chapter" behind the company.
U.S. District Judge William Pauley, who must approve the
deferred prosecution agreement that is a part of the pact, has
scheduled a hearing for Thursday afternoon in New York regarding
Shares in Toyota have dropped 1.2 percent as of 12:40 p.m.
Japan time (0340 GMT), roughly in line with the benchmark Nikkei
that fell 1.5 percent.
"EFFECTIVELY ON PROBATION"
The settlement resolves issues that have dogged the company
since at least 2007 and have been linked to at least five
deaths. Toyota still faces hundreds of private lawsuits.
Prosecutors agreed to defer and drop the criminal charges
against Toyota if it abides by terms, including allowing an
independent monitor to review the company's safety practices.
The monitor, who will be approved by the U.S. government but
paid for by the company, will be able to interview executives,
take part in some meetings on safety issues and will have a
toll-free number for Toyota employees to anonymously report
The automaker must report defects to regulators within five
days of determining the problems could affect safety.
Toyota is "effectively on probation for three years," said
Bharara, whose office conducted the investigation. "It cared
more about savings than safety and more about its own brand and
bottom line than the truth."
John Alan James, a governance professor at Pace University
in New York, said such provisions in the Toyota deal could serve
as a blueprint used by prosecutors in any deal with GM. "The
Department of Justice enforcement division is all lawyers, and
lawyers live on precedents," he said.
The U.S. Attorney's office in Manhattan is investigating
GM's handling of its ignition-switch recall. GM faces probes by
Congress and safety regulators at the National Highway Traffic
Safety Administration, as well as lawsuits from GM drivers who
say their cars lost value because of the defects.
GM Chief Executive Mary Barra has been credited for
apologizing quickly for the slow recall and promising to focus
on safety. Toyota had played down the problems.
However, GM is still under fire for failing to address the
defective switches when they were discovered.
A GM spokesman declined to comment on whether the Toyota
settlement could be a model for his company.
GM drivers have described accidents dating back to the
mid-2000s in which engines spontaneously shut off, sending cars
careening and disabling airbags before the vehicles crashed.
Toyota drivers, by comparison, found themselves in vehicles
cruising to speeds higher than 100 miles per hour while the
brake pedals were functionally disabled.
The 1966 Motor Vehicle Safety Act first required
manufacturers of cars and trucks to notify the public of safety
problems and to act if they find a defect.
Congress has amended the law several times but did not add
criminal penalties until 2000, and even then it was assumed
bringing a case would be difficult.
To prosecute Toyota, the Justice Department worked around
those requirements by bringing its case under a wire fraud law
that they use in cases from securities fraud to political
A document prosecutors filed in U.S. District Court in
Manhattan says Toyota "defrauded U.S. consumers into purchasing
its products by concealing information and making misleading
statements about unintended acceleration."
Holder said federal prosecutors in New York "have been
appropriately creative in crafting these mechanisms that can be
used in similar kinds of cases to hold companies responsible for
Toyota said it would take a $1.2 billion after-tax charge
for the settlement in the fiscal year ending March 31.
Toyota dealers said customers have moved on. "It's good to
get this behind us, but we don't hear about this at all from
consumers," said Carl Swope, a Toyota dealer in Kentucky.
'LIES REPEATEDLY TOLD'
The settlement resolves a four-year investigation by U.S.
authorities, led by the New York FBI, which conducted more than
Federal regulators opened the 2007 inquiry into Toyota after
reports of unintended acceleration by the Lexus ES350 model.
The problems gained public attention two years later when a
highway patrolman and his family were killed in an accident in
San Diego that involved that model of Lexus.
A 911 emergency call recounted the family's last minutes:
"We're in a Lexus ... and we're going north on 125 and our
accelerator is stuck ... there's no brakes ... hold on and pray
..." The call ends with the sound of it crashing, prosecutors
Toyota responded with a recall of millions of vehicles but
left on the road some vehicles including the top-selling Corolla
which was described within the company as having among the worst
problems with floor mats that trapped acceleration pedals.
The company also concealed from the public and regulators a
separate problem with the acceleration pedal itself.
In fact, the company canceled a design change to address the
issue in the wake of the San Diego accident.
"Idiots! Someone will go to jail if lies are repeatedly
told. I can't support this," one Toyota employee said after a
meeting with regulators according to a statement of facts filed
with the settlement.
That employee's comments came after he reviewed reports from
Europe showing the severity of the problem.
(Additional reporting by Julia Edwards in Washington, Yoko
Kubota in Tokyo, and Emily Flitter; Editing by Doina Chiacu,
Bernadette Baum, Peter Henderson and Matt Driskill)