BAD NEWS FOR TOYOTA CONTINUES

The last two weeks have seen an avalanche of negative headlines for Toyota.  A sampling below:

• On February 23, 2010, Jim Lentz, Toyota’s President of U.S. Sales, admitted during questioning before the House Energy and Commerce Panel that it was “probably fair to say” that the company may not know the cause of unintended acceleration in as many as 70 percent of customer complaints.
• On February 24, 2010, Akio Toyoda–Toyota’s President and the grandson of the company’s founder–told the House Oversight and Government Committee that he didn’t learn about unintended acceleration problems in Toyota vehicles until late 2009, and claimed that he wasn’t aware of a July 2009 internal memo that bragged about $100 million in savings on recalls.  The plausibility of his professed ignorance was called into question when Lentz testified before Congress that decisions about important safety issues like recalls were all made in Japan–an admission at odds with Toyota’s efforts to portray itself as a company solidly rooted in the U.S.
• On February 26, 2010, Bloomberg News reported that the same memo characterized Toyota’s success in blocking a formal recall of Sienna minivans as a “win” for the company.  The problem with the Siennas involved collapsing liftgates that led to 98 reported injuries.  Toyota persuaded the National Highway Traffic Safety Administration to close its investigation by sending a letter to Sienna owners offering to replace defective struts on the liftgate.
• On March 2, 2010, USA Today/Gallup released results of a survey that showed that 31% of Americans now believe Toyota and Lexus vehicles are unsafe to drive, and 55% believe the carmaker dragged its feet in responding to potential safety defects.
• Also on March 2, 2010, the New York Times reported that Camrys manufactured before 2007–which were not subject to Toyota’s recent recalls–were the subject of hundreds of unintended acceleration complaints.  Toyota did not recall the pre-2007 Camrys because they use a different gas pedal and different floor mats than later models.  However, the complaints about pre-2007 Camrys suggests that unintended acceleration may be caused by problems with the electronic throttle system and not defective gas pedals or floor mats.
• On March 3, 2010, the Associated Press reported that NHTSA continued to receive complaints of unintended acceleration from Toyota owners whose cars had been repaired.  The continued problems suggest that unintended acceleration is caused by problems with the electronic throttle system, something Toyota has repeatedly denied. Toyota has attributed the problems to defective gas pedals and floor mats, and its fixes have focused on swapping out floor mats, replacing and modifying pedals and removing floor padding.  NHTSA has asked Toyota owners who continue to experience unintended acceleration post-repairs to contact the agency.
• On February 24, 2010, the New York Times reported that Toyota is facing a revolt from its suppliers, who have been frustrated in recent years by Toyota’s efforts to squeeze prices despite rising production costs.  The recall crisis has led the traditionally loyal suppliers to break rank and speak out against the company.  The owner of one supplier, Teruo Moewaki, became a local celebrity by saying on television he would no longer accept orders from the embattled manufacturer.

TOYOTA EMBATTLED BY MANUFACTURING DEFECTS, ALLEGATIONS OF COVERUP

Toyota, already embattled by manufacturing defects that have led to millions of recalls, now faces questions about when it learned of the defects and whether it deliberately hid the defects from consumers and U.S. regulators.  A recently disclosed internal memo reveals that Toyota persuaded U.S. regulators to drop a 2007 investigation into unintended acceleration by agreeing to a limited floor mat recall, at a savings of over $100 million dollars to the company.  This revelation, coupled with allegations by a former Toyota lawyer that the company hid safety defects, raise questions about whether Toyota knew about the safety issues that prompted the recalls and deliberately avoided disclosing them.

As of late February, Toyota had recalled more than 8.5 million vehicles globally for a number of manufacturing defects.  Those defects include sticky accelerators, accelerators pinned by floor mats and defective electronic throttles—all defects which can lead to unintended acceleration.  A braking glitch in hybrid models has also led to the recall of more than 400,000 Prius models.  The recalls have cost Toyota an estimated $2 billion dollars to date, and led to a sixteen percent drop in 2010 U.S. sales. 

The recalls were prompted by a 2009 auto accident, caused by unintended acceleration in a Lexus model, which killed a California highway patrolman and his three family members.   But new evidence raises questions about when Toyota learned of the unintended acceleration problem, suggesting that Toyota may have known about the defect, and hid it from regulators, for years.

Complaints of sudden acceleration in the United States date back to at least 1996, when the National Highway Traffic Safety Administration (“NHTSA”) received seventeen complaints about the 1996 Camry model.  Between 2003 and 2009, consumer complaints prompted NHTSA to open seven investigations into sudden acceleration in Toyota and Lexus models, but it closed five of them for lack of evidence.  

New evidence reveals how the company influenced NHTSA’s investigations.  In a recently disclosed internal memo, a staffer in Toyota’s Washington, D.C. office brags about saving the company $100 million dollars by persuading regulators to end a 2007 unintended acceleration investigation in exchange for a limited floor mat recall.

Government officials now want to know when Toyota learned of the unintended acceleration problems and whether it was forthright with U.S. regulators and consumers in disclosing them.  Numerous Toyota officials, including the company’s President, Akio Toyoda, have been called to testify before various government panels, including the House Oversight and Government Reform Committee and the House Energy and Commerce Committee.  Federal prosecutors in New York and Los Angeles have subpoenaed Toyota documents and could be weighing criminal charges against the company.  Amongst the charges Toyota could be facing are violations of the recently enacted TREAD Act, which requires auto makers to disclose foreign recalls and makes it a felony to lie to U.S. regulators.  Ten years ago, Toyota initiated a recall of a Lexus model in the United Kingdom due to unintended acceleration, but it is unclear whether the company disclosed the recall to U.S. regulators. 

Toyota has responded to the allegations by admitting mistakes, but attributing them to explosive growth during the last decade. Toyota became the world’s largest auto maker in 2008, having increased sales over the preceding decade by more than 50 percent.  In a statement, Mr. Toyoda acknowledged that the company “pursued growth over the speed at which [it was] able to develop [its] people and [its] organization.”

But are Toyota’s problems the result of innocent growing pains, or deliberate wrongdoing?  According to one former Toyota lawyer, it is the latter.  Dimitrios Biller served as managing counsel for Toyota’s American operations from 2003 to 2007, overseeing the company’s products liability litigation. He resigned his position, he says, after his repeated complaints to management about Toyota’s unethical conduct went ignored.  According to Biller, the company made a practice of concealing proof of safety problems during litigation.    “They were hiding evidence, concealing evidence, destroying evidence, obstructing justice,” Biller said.

If it is proven that Toyota knowingly concealed safety problems from regulators and consumers, the company’s problems are only just beginning.  It could face criminal prosecution in addition to hundreds of lawsuits—some already underway—seeking monetary damages (including punitive damages) for injuries caused by the undisclosed sudden acceleration problem.