Toyota is slammed with a $1.2 billion fine. Is General Motors next?
After Attorney General Eric Holder levied the Department of Justice’s highest fine ever on an automobile company, many are asking whether the fine sets a precedent for similar situations involving consumer safety misinformation.
General Motors Photo by Michael Kumm (Flickr)
Toyota has long been known as a company that stands for innovation and dependability. Perhaps that is why it is even more shocking to find out that Toyota has been at the center of attention the last few weeks for deliberately deceiving and concealing information from consumers about accidents that occurred in 2008 and 2009. Eric Holder, the U.S. Attorney General, announced the fine as part of a criminal wire fraud charge against Toyota due to the company’s actions in misleading the American public. The U.S. has agreed, as a part of the settlement agreement, to drop criminal charges against Toyota as long as the company participates in probationary-type activities for the next three years.
It was later discovered that a faulty floor mat engaged the gas pedal and kept it from decelerating, causing the “sticky” pedal problem.
Eric Holder by USDOJ
The charges against Toyota stem from as far back as 2008, when Toyota (who also manufactures and sells Lexus brand automobiles) became aware of an issue with its cars that caused the gas pedal to either stick, or worse, accelerate, leaving the driver powerless to stop the car.
By many accounts, the height of the problem occurred in September 2009 when a family of four was driving their Toyota-manufactured Lexus in San Diego. During the drive, the gas pedal stuck and the driver was unable to slow the vehicle down. The family was able to telephone a 911 operator during the disaster and described the situation. During the call for help, however, the car crashed into another automobile and all four members of the family died. It was later discovered that a faulty floor mat engaged the gas pedal and kept it from decelerating, causing the “sticky” pedal problem. According to the Department of Justice’s (DOJ’s) release in March 2014, it appears Toyota was aware of the floor mat problem as early as 2007, but only recalled approximately 55,000 floor mats, leaving numerous defective floor mats in other cars.
Toyota led the public to believe that the sole defect for the gas pedal sticking problem was the floor mats, staying silent on the fact that it also knew of the defective gas pedals in a score of its vehicles.
In an unfortunate twist of fate, the floor mat problem present in many Toyota automobiles was only one of two causes that led to gas pedals sticking or accelerating mid-drive. An additional problem was the result of a defective plastic pedal that locked the pedal in place and was incorporated into many Toyota models. This second defect was discovered in Toyota’s European cars in 2008.
Perhaps the most egregious of Toyota’s mistakes was its handling of the defective pedal. The DOJ stated that when the floor mat problems came to light in 2009, Toyota led the public to believe that the sole defect for the gas pedal sticking problem was the floor mats, staying silent on the fact that it also knew of the defective gas pedals in a score of its vehicles. Toyota ended up recalling many of these vehicles, stating that if the floor mats were replaced, there should not be any additional problems.
Around the same time, Toyota was deciding whether to change the defective gas pedals, alter the design of the pedal they knew to be defective, or both. When the floor mat issue came to a head after the San Diego crash, Toyota still refused to acknowledge that there was an alternative gas pedal issue. Even amid accusations that something was amiss, Toyota stated that it had “absolutely not minimized public awareness of any defect or issue with respect to its vehicles” and that “[a]ny suggestion to the contrary [was] wrong and borders on irresponsibility.” Toyota was “confident that the measures [it was] taking address the root cause and will reduce the risk of pedal entrapment.”
Eventually, Toyota recalled millions of cars and corrected the dual issues with the gas pedal in 2010. Yet, Toyota continued to give misleading facts to the National Highway Traffic Safety Administration (NHTSA) by saying it had only become aware of the “sticky pedal” problem in November 2009 and was taking corrective steps within ninety days of discovering the issue. Toyota also made similar statements to the American public and the U.S. Congress.
The fallout from the Toyota settlement agreement may be a precursor for further investigations and action against fellow car manufacturers.
After the investigation and charges against Toyota, the DOJ and Toyota reached a settlement agreement. The Attorney General would defer the wire fraud charge related to the false statements concerning the defects for three years and then dismiss the charges altogether if Toyota paid the $1.2 billion fine and adhered to certain mandates. These mandates require Toyota to have “an independent monitor to review and assess policies, practices and procedures relating to Toyota’s safety-related public statements and reporting obligations.” Furthermore, Toyota stated that it has made additional changes within its corporate structure and involving its safety controls.
The fallout from the Toyota settlement agreement may be a precursor for further investigations and action against fellow car manufacturers. At the very least, the fine against Toyota is a benchmark for businesses in the industry that may be in similar situations. It could even entice car companies to be upfront and honest about small defects in the hopes they will not cross the DOJ.
There are accusations, however, that GM knew since 2005 about the ignition problem and could have opted for a replacement part, costing only fifty-seven cents.
One situation that the Toyota settlement may influence is General Motors’ recall of approximately two million cars due to a defective ignition switch. The General Motors (GM) website states that the ignition switch can move out of the “run” position while driving, causing a loss of electrical power and turning the engine completely off. This also prevents airbag deployment, a major concern if a wreck results from the ignition switch problem. General Motors’ officials warn that additional weight on the keychain (keys, fobs, etc.) can increase the risk of an incident. To date, there are thirteen deaths directly linked to the faulty ignition switch.
Similar to the Toyota facts, there are questions whether GM waited too long to recall the cars in question. On April 1, 2014, GM’s CEO, Mary Barra, testified before Congress, answering questions alluding to the fact that GM may have been aware of the ignition switch issue for nearly a decade. Barra did a good job keeping mum on many issues regarding what GM knew in the years preceding this recent recall, saying that GM has launched an internal investigation to see what the company did and did not know.
There are accusations, however, that GM knew since 2005 about the ignition problem and could have opted for a replacement part, costing only fifty-seven cents. Furthermore, emails from 2005 show the company was aware of the ignition switch problem, as well as the fact that GM redesigned the ignition switch in 2006 without changing the part number so there was no way to distinguish old and new switches.
Moreover, NHTSA’s chief David Friedman testified on April 1, 2014, that NHTSA would have moved forward with a full investigation of GM if it was supplied with information that NHTSA alleges General Motors failed to provide. General Motors apparently did not inform NHTSA about the redesign of its ignition switches in 2006, or that GM had determined that the defective switches were the root of what NHTSA believed was merely an “airbag problem.” Friedman said NHTSA is currently investigating whether GM acted in good faith and disclosed the appropriate information as required by law.
For companies who wish to make business determinations in that way, these substantial fines will help in their decision-making process.
Attorney General Eric Holder has been fairly quiet on the details of any DOJ investigation into GM, but warned in March 2014 that “other car companies should not make Toyota’s mistakes.” It seems that Holder is trying to impress on car manufacturers the importance of being transparent with the American people and the United States government. As long as car defects are dealt with in an open and timely manner, it seems likely that neither NHTSA nor DOJ have any motive to become involved or issue fines. Hopefully other car manufacturers see the failures made in the industry and learn from those mistakes. Many believe alerting the public about defective automobile conditions is not something that a car company should be deciding on a cost-benefit analysis. However, for companies who wish to make business determinations in that way, these substantial fines will help in their decision-making process.
