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Toyota Announces $1.1 Billion Settlement In Acceleration Recall

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Remember last week when Toyota coughed up $17.35 million for "the single highest civil penalty amount ever paid to NHTSA for violations stemming from a recall"? That was chump change compared to Toyota's next payout.

In a press release posted yesterday, the world's best-selling automaker has agreed to shell out a staggering $1.1 billion to settle a range of complaints associated with its headline-grabbing unintended acceleration recalls from early 2010.

THE BREAKDOWN

The $17.35 million penalty announced last week was a fine levied against Toyota by the National Highway Traffic Safety Administration because the automaker was late to include the 2010 Lexus RX in its recalls.

The $1.1 billion announced yesterday, however, will go largely to consumers, not a government agency. The funds will be used to improve the safety of owners' current Toyota vehicles and to reimburse previous owners and lessees for losses in resale value. Specifically, the cash will be used to:

  • "[R]etrofit...non-hybrid vehicle models subject to the floor mat recall with a free brake override system (BOS) to provide an added measure of confidence";
  • Make "cash payments to eligible customers who sold or turned-in their leased vehicles in a period during 2009-2010";
  • Make cash payments "to eligible current owners and lessees who will not be offered BOS"; and
  • "[E]stablish additional driver education programs and fund new research into advanced safety technologies".

However, before Toyota begins making those payouts, the company's offer will have to be approved by a judge in Santa Ana, California. And even if that settlement goes through, some doubt that the figure will stop at $1.1 billion. Speaking to Bloomberg, analyst Takeshi Miyao expects the amount to "snowball into a bigger sum". And of course, the $1.1 billion figure doesn't include the $25.5 million that the company has already spent to settle a class action suit brought by investors as a result of the recall fiasco. 

SAVING FACE

It's interesting that Toyota has chosen to make this huge payout, considering that numerous tests have proven that Toyota itself was largely blameless for the high-profile incidents that led to the massive recalls. (Some of those incidents have been blamed on driver error, while at least one other was revealed to be a hoax.) However, Toyota "concluded that turning the page on this legacy legal issue through the positive steps we are taking is in the best interests of the company, our employees, our dealers and, most of all, our customers".

If there were ever a good time for Toyota to endure such a financial hit, now would be it. After the setbacks of 2011 -- due largely to natural disasters in Japan and Thailand -- the company's sales are booming, brand loyalty is soaring, and Toyota is tops in resale value. The automaker will write down the loss this quarter.

Interestingly, Toyota's announcement has had little to no effect on the company's stock price. In Japan, shares have risen over the past 48 hours, and even in the U.S., prices remain near their 52-week highs. That said, it's possible that many investors missed Toyota's announcement during the Boxing Day lull. We'll see if things change on the trading floor today.

If you're a current or previous Toyota owner or lessee and believe you might be due some compensation, we encourage you to visit ToyotaELSettlement.com or call 877-283-0507. And be sure to visit our colleagues at Motor Authority for more on this story.

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