Shares of
Toyota rose nearly 3 percent in Tokyo following the news, with some investors
saying the settlement removed one uncertainty for the company and looked
manageable given its improving sales outlook and a weaker yen.
The
proposed settlement will compensate customers for economic losses related to
possible safety defects in Toyota vehicles, covering most of the litigation
involving unintended acceleration, although it does not cover claims for
wrongful death or injuries.
About 16
million Toyota, Lexus and Scion vehicles sold in the United States spanning the
model years 1998 to 2010 are covered by the action, according to court filings
made public on Wednesday. Thirty nameplates are affected, including the
top-selling Toyota Camry midsize sedan and Corolla compact car.
Toyota,
the No. 3 automaker in the U.S. market, admitted no fault in proposing the
settlement, one of the largest of U.S. mass class-action litigation in the
automotive sector.
"This
was a difficult decision, especially since reliable scientific evidence and
multiple independent evaluations have confirmed the safety of Toyota's
electronic throttle control systems," Christopher Reynolds, general
counsel for Toyota Motor Sales, USA, said in a statement.
"However,
we 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."
The
figure eclipses other settlements in the auto industry including Bridgestone
Corp's $240 million payout to Ford Motor Co in 2005 over Ford's massive
Firestone tire safety recall in 2001. Ford replaced 13 million Firestone tires,
installed mostly as original equipment on the company's popular Explorer SUV,
in one of the biggest recalls in U.S. history.
Hagens
Berman, the law firm representing Toyota owners who brought the lawsuit in
2010, issued a statement saying that the settlement was valued between $1.2
billion and $1.4 billion. In a memo filed in court, the lawyers said the
settlement was "a landmark, if not a record, settlement in automobile
defect class action litigation in the United States."
Toyota
said it would take a one-time pretax charge of $1.1 billion to cover the costs.
The company said it planned to book the charge as operating expenses in its
October-December third quarter.
"This
is positive, as it removes the factor that was the biggest concern when it came
to lawsuits ... Because Toyota's absolute numbers are very big when it comes to
profits, it's hardly going to have an impact," said Koji Endo, an autos
analyst at Advanced Research in Tokyo.
Toyota
may be able to offset costs with a rise in its profits as the yen weakens, he
added. Toyota's operating profit increases by 35 billion yen for every one-yen
rise in the value of the dollar. The automaker has forecast an operating profit
of 1.05 trillion yen ($12.3 billion) for the financial year ending in March
2013.
Toyota
shares rose 2.7 percent, compared with a 1 percent rise in Japan's benchmark
Nikkei index.
LINGERING
EFFECTS
Toyota's
recall of more than 10 million vehicles between 2009 and 2011 hurt the
company's reputation for reliability and safety.
The
effect of the recalls on sales and loyalty remains "difficult to
isolate," IHS Automotive analyst Rebecca Lindland said.
"A
lot of their growth through the early 2000s were first-time Toyota
buyers," she said. "Those are the people that were most vulnerable to
saying, 'I'll never own a Toyota again.' The long term effects won't fully be
realized until all of the cars that have been impacted by the recall have been
retired."
The
biggest safety crisis in Toyota's history began to get public notice in August
2009 when an off-duty California Highway Patrol officer Mark Saylor and three
members of his family were killed in a Lexus ES 350 that crashed at a high
speed.
A
separate lawsuit over the death of the Saylor family was settled out of court.
A handful of wrongful death and personal injury cases are still pending, but
the vast majority of the litigation over unintended acceleration will be
finished if the proposed settlement is approved, said a person with knowledge
of the remaining lawsuits who wished to remain anonymous.
Within a
half year of the Saylor family crash, Toyota President Akio Toyoda and other
company executives were questioned in a high-profile U.S. Congressional hearing,
and Toyoda made a public apology.
Toyota
maintained all along that its electronic throttle control system was not at
fault, and reiterated that on Wednesday. It has blamed ill-fitting floor mats
and sticky gas pedals for the problem.
A study
by U.S. safety regulator the National Highway Traffic Safety Administration and
NASA found no link between the reports of unintended acceleration and Toyota's
electronic throttle control system.
INCREASINGLY
COMMON
The
settlement, which must be approved by a California federal judge, includes
direct payments to customers as well as the installation of a brake override
system in more than 2.7 million vehicles, according to the settlement agreement
filed in court.
The terms
include a $250 million fund for former Toyota owners who sold vehicles at
reduced prices and a separate $250 million fund for owners not eligible for the
brake override system.
Attorneys
for the plaintiffs are slated to receive up to $200 million in fees and $27
million in costs, according to court documents.
Richard
Cupp, a professor at Pepperdine University School of Law, said the settlement
was large for the automotive sector but was dwarfed by other litigation
involving economic loss claims. State cases against the tobacco industry, for
instance, amounted to more than $200 billion.
"That
could mean that lawsuits like these could become increasingly common, even
where there is not provable physical injury on large scale," Cupp said.
The case
is In re: Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices
and Products Liability Litigation, U.S. District Court, Central District of
California, No. 10-ml-02151. ($1 = 85.6700 Japanese yen)
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