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Toyota's Shameful Wrist-Slap

As you've probably heard by now, Toyota (NYSE: TM  ) , which was slapped two weeks ago with the largest fine ever thrown at an automaker by the U.S. government, decided Monday to pay up rather than fight it out in court.

That wasn't much of a surprise. Toyota has enough bad press clippings in its 2010 folder already. It didn't need the months of headlines that would accompany a protracted court battle. And fighting the fine would have run counter to Toyota's recent attempts to look at least somewhat contrite.

But this part surprised me: The Feds let Toyota pay without admitting guilt.

Why is that a surprise? Because it's almost like not punishing them at all.

What the heck happened?
What happened to all that tough talk we heard from the feds a couple of weeks ago? You know, where Transportation Secretary Ray LaHood went on about how Toyota "hid a dangerous defect for months" and "did not take action to protect millions of drivers"? And that letter they sent to Toyota pointing out that the fine could have been (and might have been) some $13.8 billion -- $6,000 per recalled car -- if total possible fines hadn't been capped by law?

Instead, we seem to have gotten a cozy win-win scenario. The government can act like it accomplished something, while Toyota pays its $16.4 million-with-a-mere-'m' fine and quietly goes back to business.

It's perfectly clear why this was Toyota's preferred scenario: The amount of money is a mere drop in the bucket of cash it's spending on incentives and advertising in the U.S. at the moment. It's a bargain price to pay to put this piece of the unintended-acceleration scandal on the back burner.

And since the company didn't admit guilt, the fact that Toyota paid the fine is less likely to carry weight in the tidal wave of litigation presently crashing down on Toyota's shores.

That's the part that gets me. If the feds really wanted to hit Toyota where it hurt, they would have insisted that Toyota admit its guilt and face the consequences in those lawsuits, which could have been very serious indeed.

But instead, we get a little bit of kabuki theater, where everyone plays their assigned roles and nothing actually happens.

Meanwhile, the recalls continue.

Another week, another bunch of Toyota recalls
Last Friday afternoon brought yet another surprise, as Toyota announced the recall of some 600,000 Sienna minivans for a problem that sounds trivial until you think about it: The cable that holds the van's spare tire in place under the car can rust through, apparently, causing the tire to fall off. Like, onto the highway. Possibly at high speeds. In traffic. Not good, but repair should be straightforward, and Toyota's on the case.

Despite the size of the Sienna recall, the damage to Toyota should be minimal -- the problem should be relatively inexpensive to fix, it's not a lurid-local-news-headlines kind of defect, and frankly, the public is probably suffering from recall fatigue where Toyota is concerned.

But it will be interesting to see how the latest developments affect Toyota in the marketplace, where its rivals are continuing to try to take advantage. According to Edmunds, Honda (NYSE: HMC  ) is mounting an uncharacteristically aggressive incentives campaign at the moment, and Ford (NYSE: F  ) , Nissan, and others are continuing offers of "zero-percent financing" on several models, just as Toyota winds down its own national incentives programs.

On the other hand, Monday's announcement that Toyota would recall 9,400 Lexus GX 460 SUVs wasn't much of a surprise at all. Consumer Reports issued its scathing review of the vehicle's handling characteristics last week, labeling it a "safety risk." Toyota says that it has confirmed the existence of the problem cited by Consumer Reports and developed a repair, which involves an update to the software controlling the vehicle's stability control systems. Meanwhile, sales of the GX 460 have been suspended until they're all fixed.

Memo to Toyota: That's how you're supposed to handle a recall. You admit the problem right away, make your engineers work all weekend until they find a fix, and then get all the affected vehicles fixed ASAP. Well done.

Now why couldn't you have done that in the first place?

Read more Foolish coverage of Toyota's troubles:

Fool contributor John Rosevear owns shares of Ford, which is a Motley Fool Stock Advisor recommendation. You can (and should!) try any of our Foolish newsletters free for 30 days. The Fool's disclosure policy is a big fan of intended acceleration.

Read/Post Comments (6) | Recommend This Article (13)

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  • Report this Comment On April 20, 2010, at 3:41 PM, prginww wrote:

    I agree fining Toyota without making it admit guilt is a way for the feds to do something and look tough without making a financial difference to Toyota. But the govt also has an interest in not crushing Toyota as a company because it employs Americans and sells cars Americans want. And whacking a competitor might not help the overall market.

    Should we spend taxpayer money dragging Toyota into court to get it to admit guilt? Should the govt be working to make plaintiffs' cases stronger? If fines are meant to be punitive, they obviously need to be allowed to be bigger. Just some thoughts.

    Kris (TMF coypeditor)

  • Report this Comment On April 20, 2010, at 5:14 PM, prginww wrote:

    Excellent article. As they say, "Sooner or later they will find you out!" With Toyota there is a pattern and that should make everyone take notice. By the way, a few robot driven assembly plants making products here in the states does not make an American company. There are more people needed to build cars than those in a plant full of robots. Their recent ads are an insult.

    Looks like America is starting to see the damage caused by too many imports causing Americans to be out of work. Not only does too many imports sink our economy by causing people to be un-employed, causing people to be on welfare, causing tax problems for our schools, and local government, etc., they also cause safety risks for our people as we have seen with Cars, Trucks,SUV’s, Toys, Drywall, etc.

    Back to Toyota, as I said, EXCELLENT ARTICLE and I agree that they should do more than pay the fine!

  • Report this Comment On April 20, 2010, at 9:39 PM, prginww wrote:

    If Toyota plants in the US uses robots and only a few workers, then shutting down NUMMI is no big deal, right? Wrong, 4700 or so lost their jobs.

  • Report this Comment On April 21, 2010, at 11:15 AM, prginww wrote:

    I don't know if I agree with you on this one, John. According to a WSJ story, the specific language of the settlement is that Toyota denies breaking US laws - but the rest of it is the NHTSA laying out how they did break the law and got hit with the maximum penalty for doing it.

    Since NHTSA hit Toyota with the maximum penalty and they agreed to pay it, I don't know what other leverage NHTSA had to make Toyota admit guilt.

  • Report this Comment On April 21, 2010, at 2:07 PM, prginww wrote:

    Robots? Over 7,000 people work in the Ky Toyota plant. Many thousands more in logistics, suppliers, etc, and that is only one plant. There are several others. The runaway Toyota is like Bigfoot. Many people swear they have seen one but no evidence yet. Two incidents of vehicles being driven into storefronts near where I live in the past two weeks. One was a Cadillac crossover, the other involved a Ford Taurus. In both cases it was determined that the drivers had their foot on the gas instead of the brake. What if those had been Toyotas? headlines would read "ANOTHER RUNAWAY TOYOTA". How about the lady who drove her Toyota into a storefront in a northern state a few days ago-Minn, or Wis. I think. She said her foot was on the brake, even had a "witness" who said they saw the brake light. Surveillance camera showed the brake came on AFTER the impact. Without that camera, another runaway Toyota. The housekeeper in New York who wrecked the Boss's Prius? Computer showed no brake applied and full throttle at impact. Toyota probably saved us millions of dollars in hearings and arguments by paying the fine and moving on. As for "buy American"? Do a little research and see where Ford, GM and Chrysler are building a lot of their vehicles. I bought a new Dodge truck a few years ago---built in Mexico. And that is only one, there are many others.

  • Report this Comment On September 02, 2010, at 11:40 PM, prginww wrote:

    This toyota proof to be a win, win situation. This is a true art work, which will be a success story.


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