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  (Source: Sting Ray Studios)

Toyota has recalled millions of vehicles, including the best-selling Camry for unintended acceleration problems. Toyota has now received a massive fine for trying to deceive U.S. federal regulators.  (Source: Torque Report)
Fine is largest in U.S. history against an automaker

The atmosphere at the U.S. Department of Transportation on Monday was tense as Secretary Ray LaHood slammed Japanese automaker Toyota.  Lahood announced, "We now have proof that Toyota failed to live up to its legal obligationsWorse yet, they knowingly hid a dangerous defect for months from U.S. officials and did not take action to protect millions of drivers and their families."

Defects are an automaker's eternal enemy.  Every year thousands, if not millions of vehicles are recalled for defects.  Toyota's critical problem was not so much the defects itself -- despite the massive number of vehicles involved.  Rather, Toyota's key mistake was the dangerous game of deception it reportedly played.

According to documents obtained from Toyota, the company began a recall on "sticky pedals" in September of last year in Canada and Europe.  However, it failed to inform U.S. regulators of the problem, and made no effort to launch a recall of the effected vehicles until it came under heavy fire in January.

That constitutes a gross violation of federal safety guidelines, which demand that an automaker inform the U.S. federal regulators within five days of discovering a defect.

As a result, the DOT has thrown the book at Toyota, proposing a $16.4M USD, the maximum penalty allowed under the law.  That fine far surpasses the biggest previous fine against an automaker -- $1M USD sum levied against General Motors for failing to promptly recall windshield wipers in 2002-2003 model vehicles.

Toyota has two weeks decide its response.  Despite the reportedly conclusive evidence, the Asian automaker is expected to appeal the decision, perhaps seeking a smaller fine.

Meanwhile, the National Highway Traffic Safety Administration (NHTSA) continues to investigate the sticky accelerators, unsatisfied with Toyota's claim that floor mats were solely to blame.  NHTSA is looking at a host of mechanical and electrical elements for bugs, and is even examining whether cosmic rays could play a role, with the help of experts from NASA.

The government continues to investigate Toyota's behavior during the recall, as well.  DOT officials said more fines could brought against Toyota if further proof of wrongdoing is revealed.

While the defect mess is unpleasant for all those involved it does raise some interesting questions about governance.  Some say that the government should not police companies, and that the commercial press should be left to investigate reports of defects and inform consumers of safety risk.  Others argue the current system is a successful one.  And still others argue that current regulation does not go far enough -- that the federal government should have the ability to levy even bigger fines against companies who knowingly make products that could endanger U.S. consumers.

Likewise, the 135 pending lawsuits against Toyota raise similar questions.  Some argue that allowing such free litigation against safety critical businesses, such as automakers and healthcare providers allows citizens to take regulation into their own hands.  Others argue that it hinders free enterprise, raising prices, and worse yet leads to bigger government.

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Where does the money go???
By fatbaldandhappy on 4/5/2010 9:51:05 PM , Rating: 0
Two Points:

1) While I don't have a problem with fines for actions companies take that are detrimental to the general public, the problem I have is with how those fines are determined and what is done with the money received. The company must pay a fine absorbed by the government. The public suffers the consequences of the defects in the cars impacting safety, value, hassle of fixing, etc.; and the public then must pay the increased cost of the next car due to the fine levied by the government which the car manufacturer must make up for. Who pays all the way around? Me and you.

2) We'll never really know exactly what happened with the Toyota high ups in dealing with the reported problems, but I'm certain Toyota didn't intentionally release a product they knew was dangerous. The modern car is a miracle of engineering and is ridiculously complex. Car manufacturers go through extensive testing involving safety, reliability, exposure to extreme conditions, etc. and even with all of this there will be issues. If the decision makers at Toyota knew of the problems and didn't respond appropriately they should be held accountable; however if they went through all reasonably possible measures to produce the best vehicle they could and a problem still got through, which they responded to, I don't think punishment is in order- perhaps a review of process so ALL car manufacturers can learn from the mistake. The problem is the entity who determines whether a punishment is in order is also the entity which benefits if a punishment is applied. The conflict of interest is glaring and the ones who pay for it are you and me.

By NicodemusMM on 4/5/2010 10:01:30 PM , Rating: 1
1) Wouldn't liability insurance cover something like that? Honestly I don't know... and either way others absorb the cost, even if it's through higher liability premiums.

2) While they may have taken all possible steps to prevent a problem (as most competitive companies do) they failed to notify authorities when one was found. I do agree with the conflict of interest. When a company (In this case Government Motors) can fine its own competition there's a problem.

RE: Where does the money go???
By nilepez on 4/5/2010 10:04:44 PM , Rating: 3
The fine is a slap on the wrist. Anyone that's actually been impacted by this issue (esp if there was serious injury or death) will sue and in some cases may get more money that the Government is getting.

They'll fight it, but their biggest cost will come in civil court.

RE: Where does the money go???
By Reclaimer77 on 4/5/2010 10:27:24 PM , Rating: 4
They'll fight it, but their biggest cost will come in civil court.

Only because the media has tainted the hell out of any jury's opinion. There still has not been one proven case of this problem. In any fair trial, where verified evidence would have to be brought against Toyota, Toyota would win. It's all " he said she said ". All we have are peoples claims, NO FACTS.

RE: Where does the money go???
By callmeroy on 4/6/2010 11:06:06 AM , Rating: 2
This door swings both ways though. Your point is "where are the facts" point is we'll have to wait and see. 34 people died allegedly/related to the sticky accelerator issue. So something happened if people's lives were lost over it.

Obviously to go to court evidence will have to be presented, we'll have to see - but its premature to say the least there are NO would you know anyway - oh because Toyota said so? :) Maybe because your favorite (pick anyone...)news website or news TV show said so? There's no law that states every family member (of one of the 34 that were killed) have to make public their case or facts...In fact its quite the opposite.

And to be clear - hear me out, I'm not saying there is a strong case against them, nor am I saying you are right and there really is no case or FACTS....I'm neutral, playing devil's advocate if you will. I'm just saying there could be a mountain of evidence, on a case by case basis, that in fact does prove that Toyota was at fault. Again, there's no law or rule that states they have to make it known to the public.

RE: Where does the money go???
By porkpie on 4/6/2010 11:20:18 AM , Rating: 1
"its premature to say the least there are NO FACTS"

That's just the point. There are no facts to implicate Toyota here. It appears to be no more than simple driver error. Yet in the minds of millions of Americans, Toyota is already guilty of a heinous crimes. And those are the people who, having already made up their minds, will be sitting on any jury.

Add in a healthy dose of rampant anti-corporate sentiment, and any decent attorney could wring a verdict out of a jury, without a single fact on his side.

RE: Where does the money go???
By Reclaimer77 on 4/5/2010 10:18:45 PM , Rating: 5
Where does the money go ? Keeping GM going, of course lol

No, on a serious note I think Toyota should counter sue. It's clearly hypocritical, and damned unethical, for the owner of Toyota's largest competitor, the Federal Government, for using this an excuse to boost GM sales and keep our ruined economy afloat. This isn't about the US consumer, and everyone knows it.

Not to mention our own safety commission still cannot reproduce this so called "defect", and the only proof is claims from customers that cannot be verified. There just isn't enough evidence for a fine this large.

RE: Where does the money go???
By HotFoot on 4/6/2010 11:32:09 AM , Rating: 2
You make a very good point with respect to the conflict of interest. The amount of money is paltry, but the reputation is very important.

RE: Where does the money go???
By eldakka on 4/5/2010 10:18:29 PM , Rating: 2
1) While I don't have a problem with fines for actions companies take that are detrimental to the general public,...

I agree with you here.

I think a potential solution would be, rather than fining companies, start bringing criminal charges against senior executives, board members and so on if they are involved in the cover up. Mistakes happen, but covering up the mistakes should be punished.

Mkae it a criminal offence to not report safety issues.

Hell, even if fines are maintained, make the management and other people involved in the cover up (following orders is not an acceptable excuse...) personally liable for paying the fines. Not the company.

RE: Where does the money go???
By HotFoot on 4/6/2010 11:36:17 AM , Rating: 2
In Canada, this responsibility lies with the Engineers. As a professional, it is part my job to protect the public in these kinds of situations - and that is what makes this a professional position, rather than being a technician with an over-abundance of schooling.

Even if my employer were to want to hide something like this, it is my responsibility to fix the situation. Not doing so can result in fines, loss of license, and criminal charges.

Are managers overpaid? Probably. But if the engineers aren't the ones taking responsibility then they aren't really engineers to start with.

RE: Where does the money go???
By DominionSeraph on 4/5/2010 10:24:59 PM , Rating: 2
Prices are dictated by the market, so a company can't easily pass the costs on.

2. Did you read the article? Automakers are required to notify US safety regulators within 5 days of detecting a defect. Toyota did not. Thus they certainly didn't "respond appropriately."

RE: Where does the money go???
By Spuke on 4/5/2010 11:03:55 PM , Rating: 1
Prices are dictated by the market, so a company can't easily pass the costs on.
Sure they can as other automakers have done so and continue to.

RE: Where does the money go???
By DominionSeraph on 4/6/2010 4:43:53 AM , Rating: 2
GM didn't do such a good job of passing costs on to the consumer.
Or Volvo -- Ford just sold them off.
Chrysler apparently not so.

If all it took to make an automaker profitable was to raise prices, no automaker would ever be in financial trouble.
The market doesn't appear to work that way.

RE: Where does the money go???
By The Raven on 4/6/2010 10:22:01 AM , Rating: 1
Volvo? You bring up Volvo? The world's most popular car?

And we all know (especially now) GM and Chrysler didn't know how to sell cars either. And are you saying that GM/Chrysler had high prices because they were trying to pass on costs like this? I don't remember them having higher prices than Toyota/BMW/Ford.

It is at least managable, if not easy, for someone like Toyota who can sell cars like hotcakes to raise the prices of their cars to absorb this without losing much (if any) market share. After all, as was mentioned previously, this really isn't much of a fine.

And you better believe that the standard taxes, insurance premiums and any other standard fees that everyone in the industry is forking over IS baked into the cost of the cars.

Hell, I import paint and resin that is used to make auto lighting and when there is a new regulation re: logistics (a la the clean truck fee) I have to modify my selling price. And there really isn't anything wrong with that system if that is what you want, but please don't be so naive as to say that Toyota can't pass this crap on to the customer.

RE: Where does the money go???
By Parhel on 4/7/2010 12:46:09 PM , Rating: 2
Volvo? You bring up Volvo? The world's most popular car?

Are you confusing Volvo with Volkswagen, or am I missing something here?

I don't remember them having higher prices than Toyota/BMW/Ford.

I think that's the point. If you raise the price in an attempt to pass on costs, customers will simply buy some other product. Thus, GM didn't have that option. They had to sell at the market value but their operating expenses were too high so they went under.

when there is a new regulation re: logistics (a la the clean truck fee) I have to modify my selling price

In this example, this cost applies to every manufacturer equally. That's an entirely different circumstance.

RE: Where does the money go???
By The Raven on 4/8/2010 11:11:42 AM , Rating: 2
Are you confusing Volvo with Volkswagen, or am I missing something here?

You are missing this:

According to the WSJ, VW has 4x the share as Volvo. What, are you in Sweden?

They had to sell at the market value

I'm not going to say much here and I'll let you connect the dots: Tell that to Ferrari, bub.

In this example, this cost applies to every manufacturer equally. That's an entirely different circumstance.

I was illustrating that if cost go up, they get passed onto the customer. I intentionally took an example for the entire industry because this story is the example of the singular company.

So what I'm saying is that prices go up for Toyota, those who want Toyotas have to pay for it. Though I would speculate that any additional cost here will be more than eaten up within one year by the consumer.

Here's my math (and I'll just go with Camrys and Corollas and do some rounding for simplicity's sake):
YTD: approx 13,000 units sold
Fine of $16,400,000
Possible Annual sales = 13000*4 = 52000 units
$16400000/52000 units = $315/unit

If I'm on the fence between one car or another I don't think that a 1.5% (315/20,000)difference is going to sway me much. But there is $315 of my money going to the gov't to be wasted.

Though I would also speculate that Toyota would spread any cost as thin as possible over time. But the fact of the matter is that the consumer eats it.

RE: Where does the money go???
By LumbergTech on 4/5/2010 11:20:34 PM , Rating: 2
I think you are a bit naive my friend. If a company feels that the price of the fallout would be less than the price of fixing something they will often just let it go.

I suggest you do some research into this type of thing.

RE: Where does the money go???
By The Raven on 4/6/2010 10:45:54 AM , Rating: 3
Ok let's assume you are correct and that Toyota calculated this recall <twirling finger around ear>. Because if they knew about this they would know about all the 2.3 mil cars that would be affected and just say, "Yeah that's cool. We'll be able to swing it."

So now looking back, do you think Toyota is in a better place today than they were before all of this happened?

I have worked with engineers on lighting and when there is a problem and I ask how I can help, they might dismiss me by saying, "Well, it not life threatening and it hasn't become a warranty issue yet, so we're ok at this point."

So if it is life threatening (a light that melts and obscures the driver's viability of the road) the policy is to deal with it. Or they get enough returns of something benign (a light that has streaks on it) they MIGHT (this is where the calculation you speak of enters the story) continue to maufacture.

They draw the line at life threatening.

Again, let's give you the benefit of the doubt and assume that someone at Toyota knew that the cars could take off and become unstoppable. Do you think they burned the results of the test that determined that? No. They would keep it and go back to the drawing board because dead people don't by cars.

If there was any wrong doing by Toyota, it was negligence and not some conspiracy to raise money.

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