Why Toyota's Billion-Dollar Settlement Should Worry General Motors Company

The unintended-accleration scandal that engulfed Toyota (TM -1.35%) in late 2009 and early 2010 led to an unprecedented apology from CEO Akio Toyoda -- and a promise to change the way the Japanese auto giant did business.

Toyota appears to have delivered on its CEO's promise, but the consequences of its actions during that period -- when it delayed recalls and seemed to hide evidence of safety problems -- have continued to dog the company. Last week, Toyota agreed to a record $1.2 billion settlement with the U.S. Justice Department in order to resolve a criminal probe into its actions.

That settlement agreement has acquired new relevance as rival General Motors (GM -0.17%) deals with a recall scandal of its own.

$1.2 billion is a huge, unprecedented fine for an automaker -- one that surely got GM's attention. But as Fool John Rosevear explains in this video, other aspects of the Toyota settlement should have GM CEO Mary Barra very concerned indeed.

A transcript of the video is below.

John Rosevear: Hey Fools, it's John Rosevear, senior auto analyst for Fool.com. Toyota said this past week that it would pay a record $1.2 billion dollars to resolve a U.S. government criminal probe into safety issues that arose in the wake of Toyota's recall scandal in 2009 and 2010.

The agreement between the Justice Department and Toyota includes an admission by Toyota that it misled American consumers about two separate safety issues related to what has been called "unintended acceleration," which is when your car takes off on you while you're driving and won't let you slow it down.

That $1.2 billion dollar settlement payment is only the most recent big hit for Toyota related to the recall scandal, they paid out over a billion dollars to settle a big class action lawsuit related to the defects a few years ago, and they've paid several other smaller settlements in other cases brought by various state attorney generals.

What's significant about this scandal is that if you'll recall, we covered it in great detail on Fool.com at the time, Toyota started out trying to cover things up, saying that there weren't any problems, or that they were minor problems, or that driver errors were to blame for this series of very well publicized incidents in which runaway Toyota products got into some fairly scary accidents.

But then the company abruptly changed course. CEO Akio Toyoda came to the US and testified before a congressional committee and he repeatedly apologized, saying that Toyota didn't want to run away from its problems and that he was committed to restoring customers' trust in Toyota. It was a strong act of leadership that arguably came a bit late, but Toyota has been working hard to really be proactive on safety stuff since, and I think they've largely recovered from the scandal, and they're clearly hoping that this settlement with the Justice Department will kind of close the book.

But of course, it comes at an interesting time, just as General Motors is facing a big recall scandal of its own, a case where GM may have known about a defect for years and is only now addressing it. U.S. Attorney General Eric Holder had some rather pointed remarks when he talked about the the Toyota settlement on Wednesday.

He didn't mention GM by name, but he did say, and I quote, "Other car companies should not repeat Toyota's mistake. A recall may damage a company's reputation, but deceiving your customers makes that damage far more lasting." And if you have been wondering why GM seems to be rushing to get everything it can into the public eye on this recall stuff, that's why GM CEO Mary Barra is making an effort to show that GM has learned from Toyota's experience. Thanks for watching.