Concealing Auto-Safety Defects Results in $1.2 Billion Fine for Toyota

Just as the news that General Motors (GM) executives knew about a deadly defect for years without correcting it, the previous scandal to rock the automotive world has just concluded. In an historic settlement with the U.S. Department of Justice, Toyota, the largest automobile manufacturer in the world, admitted that the company misled the public and the government about defective accelerators that have been linked to several fatalities.

As a condition of the settlement, Toyota has agreed to pay a fine in the amount of $1.2 billion, which is the largest penalty ever to be issued against an auto manufacturer. Concerning the penalty, assistant director of the FBI, George Venizelos, said, “The disregard Toyota had for the safety of the public was outrageous. Not only did Toyota fail to recall cars with problem parts, they continued to manufacture new cars with the same parts they knew were deadly.”

The extraordinary fine levied against Toyota is part of an effort by the Justice Department to crack down on automakers with criminal charges rather than simply civil penalties. The fine that resulted from this criminal investigation is 35 times higher than the maximum penalties that could have been imposed by the National Highway Traffic Safety Association (NHTSA).

In addition to agreeing to pay the fine, Toyota will also be barred from treating the settlement as a tax-deductible expense. This is expected to save U.S. taxpayers about $420 million. All of the proceeds from the fine will be funneled into a special asset-forfeiture fund established by the Justice Department. This fund will then be used to compensate the victims and families of victims hurt or killed because of Toyota’s actions.

The criminal fine imposed on Toyota for its accelerator defect brings the total amount the company has paid in fines, costs, settlements and lost sales to $5 billion. However, the company is still expecting to announce a profit of $19 billion for the fiscal year ending on March 31.

The specific penalty for which Toyota was charged was wire fraud. However, the charge will be dismissed in three years should the company abide by all the terms of the settlement. Chief legal officer for Toyota North America, Christopher P. Reynolds, said, “Entering this agreement, while difficult, is a major step toward putting this unfortunate chapter behind us. In the more than four years since these recalls, we have gone back to basics at Toyota to put our customers first. “

Documentation proves that company officials at Toyota knew that the gas pedals on its vehicles could become stuck and cause sudden, unstoppable acceleration since 2007. However, the company subsequently executed what has been called a “campaign of disinformation” to fool the public and the NHTSA. Instead of recalling the defective vehicles and redesigning the accelerators, the company blamed the issue on floor mats, which were much cheaper to recall and replace.

Executives at GM have been watching the Toyota case very closely. The company has recently admitted that officials knew about defective ignition systems without issuing a recall or redesign. The faulty ignitions have been linked to 12 deaths.