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Toyota Seeks to Settle Acceleration Cases for $1.1 billion

27 Dec 2012

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(Reuters) - Toyota Motor Corp (7203.T) has proposed spending $1.1 billion (£681.5 million) to install safety systems and provide cash payments to customers to resolve sweeping U.S. class-action litigation over claims that millions of the Japanese automaker's vehicles accelerate unintentionally.


About 16 million Toyota, Lexus and Scion vehicles sold in the United States from the model years 1998 to 2010 are covered by the action, according to court filings made public on Wednesday. Thirty models 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.


"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."


Toyota said it would take a one-time pre-tax charge of $1.1 billion to cover the costs. Chief Toyota U.S. spokeswoman Julie Hamp said the company would not disclose until February when it issues is next quarterly earnings report whether it would spread the cost over several quarters.


A number of Toyota recalls involving more than 10 million vehicles between 2009 and 2011 hurt the company's reputation for reliability and safety. However, the effect of the recalls on sales and loyalty is "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 this issue 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. It reiterated that on Wednesday.
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.


The settlement is "a landmark, if not a record, settlement in automobile defect class action litigation in the United States," according to a memo filed in court by the plaintiff's lawyer. 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.
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.

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