The Wall Street Journal reports that Toyota Motor Corp. has agreed to pay a $1.1 billion settlement in the infamous class-action lawsuit involving complaints of unintended acceleration. Numerous incidents involving sudden, unintended acceleration soured the automaker’s reputation and caused global sales to decrease. The settlement was filed in federal court in California on Wednesday.
Toyota takes $1.1 billion pretax hit
The Toyota settlement involves a $1.1 billion pretax charge to earnings for the current quarter, according to a representative of the automaker. Owners of approximately 16 million Toyota, Lexus and Scion vehicles from the 2009 and 2010 vehicle years will now be eligible for payments and safety updates, depending upon the vehicle and its age. As is common in such large-scale class-action suits against large corporate entities, Toyota officially admits no fault or unlawful conduct, effectively eliminating future risks and further lengthy, expensive legal trials.
“One of our overriding goals has been to vigorously defend the safety of our vehicles, and we believe we have done that,” said Mike Michels, a Toyota spokesman.
U.S. sales of Toyota flattened out in 2010, at a time when other major automakers were beginning to rebound from the automotive financial crisis. The unintended acceleration debacle ended Toyota’s 30-year unbroken run of U.S. market share increases.
Toyota settlement among largest in history
According to plaintiff attorney Steve Berman, the Toyota settlement is one of the largest in automotive industry lawsuit history. Add that to the $3.1 billion price tag of the related Toyota recalls and the price tag is hefty indeed. In 2010, the automaker reportedly estimated that recalls and lost sales would amount to about $2 billion worldwide. The exact total of the settlement including legal costs has not been revealed.
The U.S. Government probe of unintended acceleration involved reported accidents where Toyota and Toyota family vehicles had difficulty with malfunctioning throttle control electronics. Driver error was ruled a factor, but problems with floor mats contributed to some of the reported crashes.
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In addition to the unintended acceleration settlement, Toyota still faces two lawsuits related to the vehicle recalls of 2009 and 2010. One is a consumer protection suit in Orange County, Calif., and the other is an unfair business practice case brought against Toyota by attorneys general from 28 different U.S. states.
Breaking down the Toyota settlement
The Toyota settlement will include cash of up to $250 million for loss of residual value, paid to Toyota owners who sold or traded in select vehicles between September 2009 and Dec. 31, 2010. In addition, $250 million in payments will be made to car owners whose vehicles could not be updated with brake override systems (maximum $125 per owner). Between $200 million and $400 million will go toward installing brake override on 3.25 million vehicles, and $400 million is earmarked for extending vehicle warranties on engine control modules. Last but not least, $227 million is said to be marked for covering legal costs.
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