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What Toyota’s $1.2 billion settlement means for the auto industry

March 19, 2014 at 6:10 PM EST
The Justice Department announced a record $1.2 billion dollar penalty leveled at automaker Toyota. A four-year criminal investigation determined the car company had concealed unintended acceleration issues, a serious safety concern. That case could serve as a warning to General Motors, now facing its own federal investigation. Gwen Ifill talks to David Shepardson of the Detroit News and Joan Claybrook, president emeritus of Public Citizen.
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GWEN IFILL: Four years after launching a criminal investigation of Toyota, the government wrapped up its case today by announcing a major settlement, in which the company admitted criminal wrongdoing for concealing safety concerns.

ERIC HOLDER, Attorney General: Today, we can say for certain that Toyota intentionally concealed information and misled the public about the safety issues behind these recalls.

GWEN IFILL: In a toughly worded statement, Attorney General Eric Holder announced the record $1.2 billion settlement this morning. Toyota, the federal investigators said, purposely concealed what it knew about the full scope of unintended acceleration issues, linking them to faulty brakes, sticking gas pedals and tangled floor mats.

ERIC HOLDER: Toyota confronted a public safety emergency as if it were simply a public relations problem. Put simply, Toyota’s conduct was shameful. It showed a blatant disregard for systems and laws designed to look after the safety of consumers. By the company’s own admissions, it protected its brand ahead of its own customers.

GWEN IFILL: Recalls began in 2009, and ultimately spread to more than 10 million Toyota vehicles. Company sales plunged, but have since rebounded.

In a news release today, Toyota USA’s chief legal officer, Christopher Reynolds, insisted the auto giant has become more responsive since 2009.

He said, “This agreement, while difficult, is a major step toward putting this unfortunate chapter behind us.”

But Holder said the case also serves as a warning to others in the auto industry.

ERIC HOLDER: Other car companies shouldn’t repeat Toyota’s mistake. A recall may damage a company’s reputation, but deceiving your customers makes that damage far more lasting.

GWEN IFILL: That’s a not-so-veiled reference to General Motors, now facing its own federal investigation over its handling of faulty ignition switches. The company finally recalled 1.6 million vehicles last month, amid revelations it had known of the problem since 2004.

Another 1.7 million vehicles were recalled for different problems on Monday. GM says there have been 13 deaths, but a study for the Center for Auto Safety found the real number could total more than 300, a number GM disputes.

In a video posted to GM’s Web site Monday, new CEO Mary Barra promised the company is completely focused on the problem.

MARY BARRA, General Motors: And we are putting the consumer first, and that is guiding every decision we make.

GWEN IFILL: Yesterday, Barra apologized, saying she’s very sorry for the loss of life tied to the defects. The GM probe could last months. As for Toyota, federal prosecutors say they will dismiss a criminal wire fraud charge in three years if the company fully complies with the settlement.

Some further detail now on today’s settlement and what it means for the auto industry. David Shepardson covers it for The Detroit News. And Joan Claybrook is a past president of Public Citizen and she served as chief of the National Highway Traffic Safety Administration under Jimmy Carter.

How does this, David, compare to previous settlements we have heard about?

DAVID SHEPARDSON, The Detroit News: The Toyota settlement is by far the biggest ever. This was a huge blow to the company from the attorney general.

You don’t see this type of language used, I mean, shameful, cover-up, and said that Toyota, during the 2009 time frame, knew it had problems and not only did it opt not to do anything, but it canceled a proposed fix. So this is as strong as the company — as the government could be and finally extracted an admission of wrongdoing from Toyota, which it had steadfastly refused to do for five years.

GWEN IFILL: For the record, we invited representatives from Toyota and GM to join us tonight, and they declined.

How big deal does this seem to be to you in your experience following these issues, Joan Claybrook?

JOAN CLAYBROOK, Former President, Public Citizen: I think it wants huge.

It’s huge because the National Highway Traffic Safety Administration doesn’t have criminal penalty authority. And so it depends on the Justice Department to do something they never have before. And it’s also suggests, the settlement, that they’re going to do something more with General Motors and they’re putting out a warning to all the companies.

I think that the chief executives of every single auto company around the world is taking a hard look at their defect files, and what they have not reported and what they should have reported. This is going to force them to behave and act in the consumer interest.

GWEN IFILL: Often, in these kinds of business settlements, the company — the affected company says, I’m not admitting wrongdoing, but I’m willing to settle this so it doesn’t go to court.

Reading the statement of fact that Toyota itself agreed to, they admit criminal wrongdoing.

DAVID SHEPARDSON: Right. They’re not — they’re going to enter this deferred prosecution agreement, so they’re not pleading guilty. But that was something the Justice Department really wanted in these negotiations that have gone on for a long time.

They didn’t want Toyota to simply write a check. They wanted them to admit that they had done wrong. But on the other hand, Toyota has turned the page, like other companies. They’re now recalling vehicles a lot faster. The company has changed dramatically since then, but they are still paying the price from what happened then.

GWEN IFILL: Is that true, Joan Claybrook, that companies are already learning the lessons of the lawsuits and threats and investigations?

JOAN CLAYBROOK: They are, because the auto companies have been able to keep a lot of this information secret.

And the National Highway Traffic Safety Administration has not had a lot of transparency. It’s something that we’d like to see changed. So it’s very hard for the consumer. They may write a letter, but it goes no place. And so here these companies have been unmasked. It’s very embarrassing. It means they’re going to change, they’re going to more responsive, reactive.

And I hope that certainly all of them are going to be more responsive to consumer complaints and lawsuits, because that’s a source of information about problems on the road.

GWEN IFILL: A billion dollars is a lot of money, $1.2 billion, but there have been a lot of lawsuits, federal, state, civil lawsuits, which I assume are still out there?

DAVID SHEPARDSON: The legal bills for GM — for Toyota total — will top at least $3 billion. There’s a $1.6 billion settlement with over 10 million owners of Toyotas for various reasons. They have settled with state attorney generals.

There are individual claims for crashes. So when you would all the costs up for Toyota, it will be well over $3 billion. But, remember, for this year, Toyota expects to make about $19 billion in profits, about half — double what they made the year before and 30 percent of the revenue comes from the U.S. So, their…

GWEN IFILL: This hasn’t affected their bottom line?

DAVID SHEPARDSON: Well, certainly a little bit, but certainly one out of $19 billion is still significant.

But what this is really about Toyota about getting past this, because this is a very profitable market. And the more they can do to show customers that they have gotten the lesson, that they’re way beyond this, the better, since they’re making a lot of money here.

GWEN IFILL: Now, David, you and I were here just last week talking about the General Motors recall. And I wonder whether this rings a bell for you, Joan Claybrook, that this is very — you’re Mary Barra, the new GM CEO, that you’re looking at this and thinking, oh…

GWEN IFILL: … next.

JOAN CLAYBROOK: Oh, General Motors is definitely next. And there’s definitely been a cover-up of the General Motors problem. The campaign knew.

GWEN IFILL: Do we know that yet?

JOAN CLAYBROOK: Oh, absolutely. The company found it on the testing ground in 2004. They sent out bulletins to their dealers in 2005 and 2006 in which they identified what the problem and what the fix was.

They had a meeting with the Department of Transportation in 2007, where the Department of Transportation had an investigation where the investigators said the air bags didn’t inflate, and, by the way, the ignition switch was on accessory, which means it wouldn’t operate the car, but you could play the radio, but it wouldn’t inflate the air bag.

And so it was clear way back then. And I think that the Department of Transportation has completely failed in its duty here. And General Motors has harmed the public terribly. And I think there are going to be many more deaths and injuries that are going to show up. Now that the public is aware of this, they’re calling General Motors. They have all these 50 people who are answering the phones, and you’re going to hear a lot more about…

GWEN IFILL: If it is true that there’s handwriting on the wall here, what strategy is General Motors using to respond to try to get out ahead of it?

DAVID SHEPARDSON: I think Mary Barra publicly apologized this week, said they are going to take care of the victims, although they haven’t explained how.

But I do think there’s a lot of questions left unanswered. Yes, the chronology that GM has laid out shows that they did know of significant problems with this over 10 years. We don’t have the e-mails, the memos that Congress and NHTSA are seeking to know. What did they know, when did they know it, did GM really think this was a serious problem, or was it, as someone have suggested, a failure to connect the dots?

So I think there are still a lot of questions. We don’t know if what happened to GM rises to the same level as Toyota. But that’s what Congress and NHTSA are going to get to the bottom of. And that’s what GM has got to be worried about. Is this — are they going to take the same public relations hit?

GWEN IFILL: Let’s end this by talking about government’s role, because that was very strong language we heard from the Justice Department today, not just from the attorney general, but also from the secretary of transportation, the investigator from the FBI.

So what does that say about a change in attitude maybe in the federal government towards these kinds of investigations?

DAVID SHEPARDSON: Isn’t that interesting that NHTSA, as Joan said, can only impose penalties of about $60 million on Toyota. And the Justice Department said, no, we are going to fine you $1.2 billion for all the vehicles you sold that we believe fraudulently were sold.

So that basically means, hey, they can fine GM or any other auto company, sky is the limit, if they determine they broke the law. And absolutely every auto company has got to be very nervous and checking their books very carefully.

GWEN IFILL: Briefly, do you think it’s a change in the federal government’s approach?

JOAN CLAYBROOK: We need new legislation. We need criminal penalties at NHTSA, which they don’t have. We need higher civil penalties. We need more transparency at that agency.

Yes, it’s sort of like don’t ask, don’t tell. No one asked, they didn’t tell. And they should have. And so I believe that there are a number of changes, including more submission of documents and data. And they need a higher budget. Their budget is $134 million for the whole auto safety program for the entire United States. Totally insufficient.

GWEN IFILL: Joan Claybrook, Public Citizen, of course, is how we know you, and David Shepardson of The Detroit News. Thank you both very much.

JOAN CLAYBROOK: Thank you.

DAVID SHEPARDSON: Thanks, Gwen.