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Toyota to Pay $29M for Lawsuit

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Toyota Motor Corp. (TM) agreed to pay $29 million to 29 states and American Samoa as part of a settlement related to a 2010 lawsuit accusing the automaker of late notification to customers regarding unintended acceleration in its vehicles. The participating states in the settlement include AL, AZ, AR, CO, CT, FL, IL, IA, KS, LA, MD, MI, MN, MS, NE, NV, NJ, NM, NC, OH, OR, PA, RI, SC, TN, TX, VA, WA and WI.

During the investigation of the lawsuit, state attorneys ascertained that poor communication between Toyota’s headquarters in Japan and its U.S. offices had contributed to the late notification of the defect. In response to this, the automaker plans to improve communications between the offices and bestow more decision-making power to its U.S. executives.

Further, Toyota intends to post online owners manuals and expand its rapid response teams which will assist customers regarding any safety issues in the vehicles. It has also decided to reimburse customers for expenses related to the recalls, such as rental cars or taxi rides while their cars were being recalled.

U.S. Government Fine and Other Lawsuits

In Dec last year, the Transportation Department of U.S. had slapped a fine of $17.35 million on Toyota due to late response to safety regulators regarding a defect in its vehicles as well as late recall of those vehicles.

According to the department, it was the maximum allowable fine under the law for not initiating a recall in a timely manner. The fine was added to $48.4 million imposed by the U.S. government on the company in 2010 due to late recall of millions of defective vehicles.

In the same month, Toyota had also agreed to pay $1.1 billion to settle a class-action lawsuit related to complaints of unintended acceleration in its vehicles. According to a plaintiff lawyer, the settlement is one of the largest in a lawsuit in the history of automotive industry.

The lawsuit had blamed Toyota’s defective electronic throttle-control system rather than floor mats and sticky accelerator pedals for unintended acceleration, resulting in a crash. The settlement would pacify 16 million owners of Toyota, Lexus and Scion of model years 1998 to 2010. They would be eligible for payments and safety updates on their vehicles.

According to a company filing in Jun 2012, Toyota faces more than 300 wrongful death or injury lawsuits. Last month, the company negotiated an undisclosed settlement with the families of two people who were killed in 2010 when their Toyota Camry crashed in Utah.

Past Recalls

Since Nov 2009, the automaker has recalled about 20 million vehicles globally, surpassing all other automakers. A few months back, Toyota had announced a major worldwide recall of 7.43 million vehicles that included more than a dozen models manufactured between 2005 and 2010. The recall was related to faulty power window switches in the vehicles that can cause fire because they did not have grease applied properly during production.

Sales Crown Regained

Despite these, Toyota recaptured the sales crown from General Motors Company (GM) by selling 9.75 million vehicles globally in 2012, which exceeded GM’s sales of 9.29 million vehicles. Germany’s Volkswagen AG (VLKAY) came third with sales of 9.07 million vehicles for the year. Toyota’s victory can be attributed to its impressive product lineups and marketing initiatives.

Surprisingly, sales in the company’s domestic market surged 35% despite its sluggish economy. Sales of the company’s domestic rival Honda Motor Co. (HMC) grew 19% to 3.82 million vehicles in the year.

The automaker lost its No.1 position to GM in 2011 after gaining the title from GM in 2008. The loss of crown was driven by declining reputation due to a series of safety recalls as well as negative impact from natural disasters in Japan and Thailand in 2011. However, Toyota had vowed to regain the top position by increasing its dependence on the non-U.S. markets, especially the high growth emerging markets.

Recent Earnings Results

Toyota posted a 22.2% rise in earnings per share (EPS) to ¥31.55 (39 cents) in the third quarter of fiscal 2013 ended on Dec 31, 2012 from ¥25.81 in the same quarter of prior fiscal year. The EPS was lower than the Zacks Consensus Estimate of $1.23.

Net income rose 23.4% to ¥99.91 billion ($1.23 billion) from ¥80.94 billion a year ago. The increase was attributable to lower provision for income taxes during the quarter.

Revenues increased 9.3% to ¥5.32 trillion ($65.56 billion) on a 7.3% rise in unit sales to 2.11 million vehicles. Among all the geographic markets, unit sales rose at the fastest pace in Asia (53.4%) and declined at the fastest pace in Japan (15.0%).

Operating income dipped 16.7% to ¥124.76 billion ($1.54 billion) from ¥149.68 billion in the third quarter of previous fiscal year. The decline was attributable to a 10.1% rise in costs and expenses during the quarter.


For fiscal 2013 ending Mar 31, 2013, Toyota raised its consolidated vehicles sales guidance to 8.85 million units from 8.75 million units. Consequently, the automaker projected higher consolidated revenues of ¥21.80 trillion (reflecting an expected increase of 17.3%) compared with fiscal 2012. The upward revision of sales outlook was based on higher overseas vehicle sales, primarily in North America.

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