Toyota’s deadly secrets

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Stealth tactics

September 2010, Volume 46, No. 9

Toyota’s deadly secrets 

R. Graham Esdale Jr. and Timothy R. Fiedler

For years, Toyota knew its vehicles could suddenly accelerate out of control. But it kept the problem hidden from the public and encouraged government regulators to turn a blind eye. It's time for a full accounting.

“Power tends to corrupt, and absolute power corrupts absolutely.” Lord Acton’s famous phrase was never more true than in the case of Toyota Motor Corp.’s rise and recent precipitous fall. Over several decades, the company ascended to become the world’s largest automaker, only to suffer, in the last year, revelation after revelation of internal mismanagement and breaches of consumer safety.

Toyota’s once pristine reputation for dedication to quality and safety has become marred by a continuing stream of safety recalls, federal investigations, and congressional scrutiny. Toyota has been forced to acknowledge what many unfortunate American consumers learned firsthand: Vehicles produced by Toyota are unsafe.

A year ago, Toyota issued a recall affecting 3.8 million vehicles, claiming that unsecured or incompatible floor mats could cause accelerator pedals to become stuck in the full open position.1 A few months later, the company issued another recall for 2.3 million vehicles over concerns that a “sticky pedal” mechanism could cause unintended sudden acceleration.2 In what some called an unprecedented move, five days later, Toyota temporarily suspended sales and production of eight vehicle models in the United States because of the unresolved acceleration problem.3

Evidence and concern over the compromised safety of Toyota vehicles continued to mount. In March, the National Highway Traffic Safety Administration (NHTSA) reported that 52 fatalities and 38 injuries were caused by unintended acceleration in Toyota vehicles.4 In May, NHTSA increased its estimates to 89 fatalities and 57 injuries.5

Concern over unintended acceleration in Toyotas has been growing for some time. NHTSA data suggests a continuing increase in U.S. consumer complaints about the acceleration issue in Toyota cars, reaching 400 reported cases for the 2007 model year alone6 and a total of 6,200 complaints since 2000.7 NHTSA opened eight investigations concerning unintended acceleration in Toyota vehicles between 2003 and 2010. Five of those investigations were closed, and three resulted in the floor mat recall.8

In March, a New York Times review of 12,700 U.S. drivers’ complaints of speed-control problems over the past 10 years revealed that Toyota had more complaints involving crashes than any other manufacturer.9 More than half of the vehicles involved in the crash complaints were unrecalled models.

Statistically, Toyota had one speed-control-crash complaint per 20,454 vehicles sold in the United States. This figure is significant when compared to other major auto manufacturers such as Ford: one complaint per 64,679 vehicles; Honda: one complaint per 70,112 vehicles; and General Motors: one complaint per 197,821 vehicles.10

Hiding the truth

It is unquestionable that Toyota was aware of the unintended acceleration concerns. Toyota documents demonstrate that the company lobbied federal officials, asking them to limit recalls tied to sudden-acceleration complaints. In a July 2009 internal document obtained by the House Committee on Oversight and Government Reform, the president and chief operating officer (COO) of Toyota’s North American operations, Yoshimi Inaba, stated that Toyota saved over $100 million by negotiating a limited “equipment” recall with regulators.11 The document listed “Saved 100M+, w/no defect found” under a section titled “Wins for Toyota—Safety Group.”12

NHTSA’s decision to close safety investigations without recalls was also considered a “win.” Further, Toyota noted that NHTSA had become “more sensitive to public/congressional criticism, resulting in more investigations and more forced recalls.” While Toyota boasted that it achieved “favorable safety outcomes,” consumer complaints of unintended sudden acceleration continued to grow.13

Ample evidence suggests that Toyota was or should have been aware of the acceleration problem by as early as 2004. One study noted that between September 2003 and March 2004, eight deaths were allegedly caused by sudden-acceleration events.14 The events occurred in the 2002 to 2004 Camry models and were all reported to NHTSA. However, none of these fatal events was ever investigated.

The implications of the study are clear: Fatal accidents related to unintended acceleration in Toyota vehicles were on NHTSA’s radar. Moreover, Toyota was aware that unintended acceleration was occurring in real-world situations. Despite these early warnings, the automaker continued to insist that its braking system would always override the throttle.

The result of a NHTSA investigation into Toyota’s adherence to U.S. safety laws is further evidence of the automaker’s blatant inaction. Toyota’s behavior and statements in over 120,000 documents left the agency with little choice. In April, Toyota agreed to pay a fine of more than $16 million, the largest civil penalty ever assessed against an auto manufacturer, for failing to notify NHTSA of the pedal defect for almost four months. Even after this historic fine, Toyota refused to admit fault.15

Finding the cause

Questions remain regarding the cause of the unintended acceleration. In the early 2000s, Toyota began installing electronic throttle control systems in its vehicles.16 This replaced the mechanical connection between the accelerator pedal and the engine with a computer system that related the position of the pedal to the engine throttle. By 2006, the system was being installed in all Toyota automobiles.

In a February 2010 hearing before the House Subcommittee on Oversight and Investigations, James Lentz, the president of Toyota Motor Sales, U.S.A., roundly dismissed any possibility that sudden unintended acceleration could be the result of electronic failures. In response to Lentz’s testimony, Reps. Henry Waxman (D-Cal.) and Bart Stupak (D-Mich.) issued an open letter to Lentz expressing grave concern over a Toyota study that claimed to evaluate potential electronic causes of unintended acceleration.17 The congressmen pointed out that the study was the only report Toyota had produced and was prepared at the request of Toyota legal counsel only two months before the hearing.

Congressional experts who critiqued the report said they had serious concerns about the study’s scientific veracity. They also noted that the study did not properly examine the possible causes of the unintended acceleration or adequately consider various environmental or driving conditions. These flaws led the experts to conclude that the study was unlikely to be of value in discovering the cause of unintended acceleration.18

At congressional hearings the following May, Waxman and Stupak were quite plain in expecting answers about unintended acceleration and its links to electronic systems. Again, Lentz asserted that there was no problem with the electronic throttle control systems. Incomplete research was attached for the record to bolster this claim. What wasn’t apparent from Lentz’s testimony is evident in the research report. Each page contains the following header: “DRAFT, This Document Contains Work in Progress That Has Not Been Subjected to QC [Quality Control]. Significant Changes May Occur as a Result of the QC Process.”19

During the February hearing, Waxman also noted that the reason for Toyota’s recalls—mats and “sticky pedals”—weren’t related to most of the company’s sudden-acceleration complaints. Toyota had identified mats or pedals as the cause of just 16 percent of all sudden-acceleration reports. Further, roughly 70 percent of the sudden-acceleration events in Toyota’s customer call database involved vehicles not subject to the “sticky pedal” and floor mat recalls of 2009 and 2010.20

Last month, officials with the U.S. Department of Transportation briefed members of Congress on a preliminary NHTSA study of unintended acceleration in Toyota vehicles. Researchers had not yet identified any cause of unintended acceleration beyond sticking gas pedals and pedal entrapment and were continuing to look into potential electronic and software defects.21

Lentz acknowledged that the company’s quest for expansion led to confusion of its principles. Arguably, Toyota’s problems began in 2002 when it established the goal of increasing its global market share from 11 percent to 15 percent. To achieve this, Toyota had to expand by 50 percent and open new plants in Asia, China, and the United States.22

Toyota’s pursuit of greater profits quickly outpaced its ability to maintain its safety standards. The company rapidly expanded its supply chain, which required dealing with new suppliers unfamiliar with the automaker’s standards. As its fast-paced growth continued, Toyota became more and more dependent on suppliers outside of Japan that did not have intimate work experience with the company.

Moreover, Toyota lacked sufficient senior engineers to evaluate whether these new suppliers were maintaining the Toyota standard of quality.23 As a result of Toyota’s profit-driven aspirations, consumers suffered.

Toyota’s corporate structure is homogenized and centralized, and this may have contributed to the company’s inability to address safety issues. Japanese corporate governance tends to emphasize a system of rigid seniority and hierarchy. External hiring is perceived as unsettling, and lateral-moving executives are frowned upon.24 Alternative perspectives are quashed in an effort to promote harmony.

Toyota’s board comprises 29 Japanese men, all from within the corporation.25 This lack of diversity and failure to encourage independent thinking likely played a role in allowing safety concerns to go unvoiced or unheeded.

And these problems were further exacerbated by a fractured organizational structure in the United States. Toyota’s explosive growth resulted in a significant expansion of manufacturing, engineering, and testing centers in North America, along with extensive financial networks and sales offices.26 But Toyota did not establish a central U.S. headquarters. Often, significant decisions about U.S. operations were made in Japan.27

Keeping secrets

Toyota forged key alliances with NHTSA to avoid government oversight. Government and court documents show that Christopher Tinto, vice president of regulatory affairs for Toyota’s Washington, D.C., office, and his coworker, Christopher Santucci, were integral in persuading NHTSA to cease probes into Toyota’s vehicles.28 Notably, both Tinto and Santucci joined Toyota immediately after leaving jobs at NHTSA.

Between 2003 and 2010, the agency closed five unintended-acceleration investigations, finding no evidence of a defect. While employed by the automaker, Tinto and Santucci worked with NHTSA on Toyota’s complaint responses in four of those investigations.29

Recalls are tough for automakers because it forces an acknowledgement of a defect and often requires costly repairs. Toyota has the distinct advantage of having ex-NHTSA employees handle issues tied to the agency. This stands in contrast to other major automakers, including General Motors, Ford, Chrysler, and Honda. Officials for these companies all report that they do not have former NHTSA employees dealing with the agency concerning vehicle defects.30

The connections between Toyota and the United States’ primary automotive regulator raise questions about the conclusions of previous Toyota investigations, as well as Toyota’s overall approach to safety concerns.

The congressional hearings not only identified concerns about Toyota’s safety testing, but they also highlighted what could be perceived as efforts by Toyota to conceal information. Subpoenaed documents presented to the House Committee on Oversight and Government Reform revealed the company’s efforts to withhold records and settle personal injury cases to avoid revealing data.31

In a letter to Toyota President and COO Inaba, Rep. Edolphus Towns (D-N.Y.) stated that the documents “indicate a systematic disregard for the law and routine violation of court discovery orders in litigation.”32 The documents reviewed by the committee revealed a collection of design and testing data called the “Books of Knowledge.” Towns claimed that Toyota would enter multimillion-dollar tort settlements when discovery of the Books of Knowledge was feared.33

Even more alarming, in March, the British newspaper the Times reported that a “smoking gun” memo produced by Toyota’s own factory workers in 2006 raised safety fears about the company’s manufacturing process.34

In the two-page memo sent directly to then-Toyota President Katsuaki Watanabe, longtime employees warned that they had witnessed a decline in craftsmanship and a rush in production that prevented adequate safety standards. They cautioned that problems were piling up, not only at the manufacturing level, but also in the planning stages for the new vehicles.35

The recalls due to unintended acceleration problems were just the beginning. The company has issued five additional recalls since January. On February 8, Toyota recalled 147,500 2010 Prius hybrids and 2010 Lexus HS 250h vehicles to correct software to antilock brake systems, along with 7,300 Camry hybrids because of faulty brake systems. This recall came in response to ­NHTSA’s announcement of an investigation into Prius drivers’ allegations that they experienced momentary loss of braking when the vehicles encountered uneven surfaces or road obstructions.36

Additional recalls soon followed: 8,000 2010 Tacoma trucks to inspect the front drive shaft (February 12); 9,400 2010 Lexus GX 460 sport utility vehicles to update the stability control system software (April 19); 50,000 2003 Toyota Sequoia sport utility vehicles to upgrade the stability control system (April 28); and 3,800 Lexus vehicles to address a steering wheel off-center condition (May 21).

These safety concerns add to the growing evidence that Toyota has forsaken the safety of its consumers in a quest for profits and market control. The company traded safe cars for “favorable safety outcomes.” Illusory claims of quality bolstered rapid expansion and transformed a once respected brand into a safety-blind behemoth whose management proved willing to put profit and growth above consumer safety.

R. Graham Esdale Jr. is a shareholder in Beasley, Allen, Crow, Methvin, Portis & Miles in Montgomery, Alabama. He can be reached at graham.esdale@beasley allen.com. Timothy R. Fiedler is an associate in the firm and can be reached at tim.fiedler@beasleyallen.com.

 

Notes:

  1. Press Release, Natl. Highway Traffic Safety Admin., Consumer Advisory: Toyota Owners Advised of Actions to Take Regarding Two Separate Recalls (Feb. 1, 2010), www.nhtsa.gov/CA/02-02-2010.
  2. Press Release, Toyota Motor Sales, Toyota Files Voluntary Safety Recall on Select Toyota Division Vehicles for Sticking Accelerator Pedal (Jan. 21, 2010), www.pressroom.toyota.com/pr/tms/toyota/toyota-files-voluntary-safety-152979.aspx.
  3. Press Release, Toyota Motor Sales, Toyota Temporarily Suspends Sales of Selected Vehicles (Jan. 26, 2010), www.pressroom.toyota.com/pr/tms/toyota/toyota-temporarily-suspends-sales-153126.aspx.
  4. Nick Bunkley, Acceleration Incidents Cited on Repaired Toyotas, N.Y. Times (Mar. 3, 2010), http://www.nytimes.com/2010/03/04/business/04toyota.html?_r=1&scp=14&sq=%20toyota&st=cse.
  5. AP, Sudden Acceleration Death Toll Linked to Toyota Rises, N.Y. Times (May 25, 2010), www.nytimes.com/2010/05/26/business/26toyota.html.
  6. Nathan Layne et al., Inside Toyota’s Epic Safety Breakdown, Reuters (Feb. 9, 2010), www.reuters.com/article/idUSTRE61851220100209.
  7. AP, supra n.5.
  8. Bloomberg, Regulators Hired by Toyota Helped Halt Acceleration Probes, Bloomberg News (Feb. 13, 2010), http://www.bloomberg.com/apps/news?pid=20601109&sid=aTfVxj4_pJh4.
  9. Bill Vlasic et al., Data Shows Camrys Outside Recall Also Had Problems, N.Y. Times (Mar. 1, 2010), www.nytimes.com/2010/03/02/business/02toyota.html?hp.
  10. Id.
  11. Neil King Jr. & Josh Mitchell, Toyota Document Links Savings, Limited Recalls, Wall St. J. (Feb. 20, 2010), http://tinyurl.com/yzw5cvz.
  12. AP, Toyota Saved $100 Million by Limiting Recall, MSNBC (Feb. 21, 2010), www.msnbc.msn.com/id/35510079.
  13. Micheline Maynard, Toyota Cited $100 Million Savings after Limiting Recall, N.Y. Times (Feb. 21, 2010), www.nytimes.com/2010/02/22/business/22toyota.html.
  14. Safety Research & Strategies, Addendum to Toyota Sudden Unintended Acceleration, Feb. 5, 2010, “Exclusion of Early Camry Deaths Hamper Later Investigations” (Feb. 17, 2010), www.safetyresearch.net/Library/report_addendum.pdf.
  15. Press Release, Natl. Highway Traffic Safety Admin., Statement of U.S. Transportation Secretary Ray LaHood on Toyota’s Agree­- ment to Pay Maximum Civil Penalty (Apr. 19, 2010), www.nhtsa.gov/PR/DOT-71-10.
  16. See Ltr. from Henry A. Waxman, Member, U.S. House of Representatives, & Bart Stupak, Member, U.S. House of Representatives, to James E. Lentz, President and Chief Operating Officer, Toyota Motor Sales, U.S.A., Inc. (Mar. 5, 2010), http://energycommerce.house.gov/Press_111/20100305/Lentz.Letter.2010.03.5.pdf.
  17. Id.
  18. Id.
  19. H.R. Comm. on Energy and Commerce, Hearing on Update on Toyota and NHTSA’s Response to the Problem of Sudden Unintended Acceleration (May 20, 2010), http://tiny.cc/pocz8 (click on “Interim Status of Exponent’s Investigation of Toyota ETCS-i”).
  20. Ltr. from Henry A. Waxman, Member, U.S. House of Representatives, & Bart Stupak, Member, U.S. House of Representatives, to James E. Lentz, President and Chief Operating Officer, Toyota Motor Sales, U.S.A., Inc. (Feb. 22, 2010), http://energycommerce.house.gov/Press_111/20100222/lentz_letter_2010_2_22.pdf.
  21. U.S. Dept. Transp. Off. Pub. Affairs, Report: Ongoing NHTSA Research on Unintended Acceleration and Event Data Recorder (EDR) Readings (Aug. 10, 2010) (on file with authors).
  22. Micheline Maynard & Hiroko Tabuchi, Rapid Growth Has Its Perils, Toyota Learns, N.Y. Times (Jan. 27, 2010), www.nytimes.com/2010/01/28/business/28toyota.html.
  23. Toyota’s Overstretched Supply Chain: The Machine That Ran Too Hot, The Economist (Feb. 27, 2010).
  24. Toyota: Accelerating into Trouble, The Economist (Feb. 13, 2010).
  25. Id.
  26. Ralph Vartabedian & Ken Bensinger, Former Toyota Insiders Say Recall Problems Stem from Company’s Fractured Structure in the U.S., Chi. Trib. (Mar. 4, 2010), http://tinyurl.com/27ps4mz.
  27. Id.
  28. Bloomberg, Regulators Hired by Toyota Helped Halt Acceleration Probes, Bloomberg News (Feb. 13, 2010), www.bloomberg.com/apps/news?pid=20601109&sid= aTfVxj4 _pJh4.
  29. Id.
  30. Id.
  31. Steve Gorman, Congress Panel Cites Evidence of Toyota Concealment, Reuters (Feb. 26, 2010), www.reuters.com/article/idUSN2611031120100227.
  32. Id.
  33. Id.
  34. Leo Lewis, ‘Smoking Gun’ Memo Reveals Toyota Workers’ Safety Fears, Times (Mar. 11, 2010), http://tinyurl.com/ykfe3o6.
  35. Id.
  36. See Micheline Maynard, Answers to Questions about Prius and the Toyota Recalls, N.Y. Times (Feb. 4, 2010), www.nytimes.com/2010/02/05/business/05questions.html.

 


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