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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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RE: Where does the money go???
By Spuke on 4/5/2010 11:03:55 PM , Rating: 1
quote:
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
Really?
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
Really?
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
quote:
Volvo? You bring up Volvo? The world's most popular car?


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

quote:
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.

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


You are missing this:
http://online.wsj.com/mdc/public/page/2_3022-autos...

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

quote:
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.

quote:
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.


"Game reviewers fought each other to write the most glowing coverage possible for the powerhouse Sony, MS systems. Reviewers flipped coins to see who would review the Nintendo Wii. The losers got stuck with the job." -- Andy Marken














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