The Toyota Recall Crisis: More Than a Re-TREAD

Subsequent History

Fast-forward to 2007. Toyota conducted a recall campaign ' without admitting a safety defect ' to replace all-weather floor mats in 55,000 2007 and 2008 Toyota Camry and Lexus ES 350 models because of unwanted acceleration claims attributed to the mats. Toyota re-designed the mats. The claims continued.

Toyota did not take action again until 2009, when a high-speed crash claimed the lives of a California Highway Patrol officer and his family. The officer had been driving a loaner 2009 Lexus ES 350. The crash, captured on a heartbreaking 911 recording that ended with the occupants calling out “Hold on and Pray” before the collision occurred, thrust unwanted acceleration in Toyota and Lexus vehicles into the national spotlight. DOT Secretary Ray LaHood issued a Safety Advisory, cautioning Toyota and Lexus owners to remove the mats, and characterizing the condition as an “urgent safety matter.”

He pressed, and Toyota agreed to conduct a second campaign, this time encompassing 3.8 million vehicles. In a letter written by Toyota's Assistant Manager of Technical Affairs (a former NHTSA employee), Toyota identified the cause of the claims as improperly positioned floor mats and agreed to notify owners to remove the mats, pending the development of model-specific remedies. Toyota again maintained that no defect existed in the vehicles and said so in its letter. Toyota's press materials stated that NHTSA concluded that no defect existed in vehicles when the mats were properly installed.

NHTSA's Response

NHTSA's response was swift. It issued a press release rebuking Toyota for making misleading statements. NHTSA characterized Toyota's recall action as only an “interim measure” that did not correct the underlying design defects in the vehicles. These, according to NHTSA, included pedal to floor clearance and floor-pan configuration ' defects that NHTSA characterized as “a very dangerous problem.”

Ultimately, Toyota would conduct one recall after another in one model after another, for one root cause and then another, in one country after another, until in the U.S. alone, 5.35 million vehicles were recalled for floor-mat interference and 2.3 million for a “sticky accelerator pedal” defect. This time, in its Defect Information Report to NHTSA, Toyota acknowledged the existence of a safety defect in the vehicles. The remedies would include changes to the accelerator pedal design and materials, as well as the installation of so-called “smart pedal” technology, which reduces engine power when a vehicle's computer senses that accelerator and brake pedals are depressed at the same time. Many automakers had already been installing smart pedals, some manufacturers for many years.

The Apology

Toyota's recalls became the largest in history. They received even more intense media scrutiny than Ford-Firestone. When Congressional hearings began, they fueled the publicity even more. At the hearings, Akio Toyoda, the president of Toyota and grandson of the company's founder, appeared and apologized to Congress and the nation for his company's actions. Congressional members were not mollified. They confronted him and other high-ranking Toyota executives with documents uncovered by the investigation. The documents included an e-mail by a top Toyota executive in America ' the Group Vice-President for Environmental and Public Affairs ' saying that “the time to hide this one is over” and “we need to come clean.” A PowerPoint presentation to another Toyota executive included a page entitled “Wins for Toyota” and listed $100+ million saved by limiting the 2007 recall to an “equipment recall.”

Moreover, Toyota's executives acknowledged that Toyota Japan retained all safety defect decision-making authority ' that Toyota's U.S. operations had none and were not involved at all. Secretary LaHood would testify that other foreign auto manufacturers did business differently, involving both U.S. and Japan executives in the safety defect investigation and determination decision-making.

Other Problems

House and Senate members called witnesses who alleged that there were other problems with the vehicles, including a confusing transmission shift selector pattern so that the Neutral position was not clearly marked, and that the keyless ignition system did not enable the driver to understand how to turn off the engine when the vehicle was in Drive. Several consumer advocates asserted that “intermittent electromagnetic interference” could play a role.

Then the other shoe dropped. NHTSA imposed the maximum $16.375 million fine on Toyota for delaying the “sticky pedal” recall. NHTSA's letter said that but for the statutory cap, Toyota “would be subject to civil penalties in the amount of $13.8 billion (2.3 million vehicles at $6,000 per vehicle).” The letter characterized the gravity of Toyota's actions as “severe and potentially life-threatening ' .” Toyota paid the fine without admitting liability.

'Motor Vehicle Safety Act Of 2010'

If this were an article about Toyota's actions and inactions, it could stop here. But it is really about the proposed “Motor Vehicle Safety Act of 2010.” This legislation, engendered by the Toyota recalls, makes TREAD seem minor by comparison. The legislation may be enacted by the time this article is published.

The House and Senate versions vary somewhat, but each would:

• Increase civil penalties, up to $300 million per violation in the Senate bill and $200 million in the House version
  (initial drafts in each Chamber entirely eliminated the cap).
• Mandate rulemaking for the installation of “Smart-Pedal” technologies.
• Mandate that NHTSA consider rulemaking for pedal clearance.
• Direct NHTSA to consider a rulemaking for improving shift selector position conspicuity.
• Mandate new rules for standardizing keyless, “push button” ignition systems to make it easier for drivers to understand how to turn off the engine when the vehicle is in Drive.
• Mandate Event Data Recorders (so-called “crash recorders”), which NHTSA could require to capture pre-crash data that may show if unwanted acceleration occurred.
• Direct NHTSA to set electronic system performance standards, considering the findings of a newly-commissioned study by the National Academy of Sciences of electronic vehicle controls and unwanted acceleration.
• Mandate the involvement of senior executives based in the United States in safety matters, through requirements that executives certify the truthfulness of key documentation submitted to NHTSA.
• Impose civil penalties of $50,000 per day up to $10 million on executives who knowingly provide false certifications ($5,000 per day up to $5 million in the House bill).
• Expand the bases for criminal penalties.
• Impose new prohibitions on former NHTSA employees who contact NHTSA on behalf of industry.
• Grant NHTSA's Administrator “Imminent Hazard” authority to hasten the defect investigation process if the Administrator concludes that there is a substantial likelihood of death or serious injury.
• Eliminate some of the confidentiality protections under TREAD for Early Warning Data submitted by manufacturers, and
• Increase funding for NHTSA to investigate possible safety defects (the House bill imposes fees on manufacturers to pay this).

There is also an extensive provision in the Senate version that protects “whistleblower” employees of auto manufacturers. There are other provisions, but the ones listed above are the most significant. They will all be explained in subsequent articles as the legislation is completed and the new rules take shape.

Important Note

One important end note: The facts and circumstances described in this article are not exhaustive and do not give Toyota's side of the story, or document the steps that Toyota took to improve the safety of its vehicles and its safety decision-making processes following the recalls. The facts were chosen because they are the ones that formed the predicate for the key parts of the impending legislation. In addition, 2007 at the hearings Toyota had presented expert evidence by an authoritative engineering consulting firm that refuted allegations about electromagnetic interference as an alleged cause of unwanted acceleration. That evidence is beyond the scope of this initial article, the first in a series that will follow the course of legislation and regulatory rulemaking stemming from the Toyota recalls, but will be discussed in a later article when the National Academy of Sciences completes its study and NHTSA prepares its rulemakings.

Professor Nicholas J. Wittner, a member of this newsletter's Board of Editors, teaches Product Liability Law and Practice at the Michigan State University College of Law.

Ten years ago, the Ford-Firestone Tire recall resulted in the most sweeping amendments to the Motor Vehicle Safety Act since it had been enacted in 1966. Congressional hearings had elicited evidence that Ford knew of tread separations resulting in fatal rollovers in the U.S. and overseas, had conducted tire “replacement campaigns” on Ford Explorers in Venezuela and Saudi Arabia, but had not done so in the U.S. Nor had Ford informed the National Highway Traffic Safety Administration (NHTSA) of the overseas campaigns, the fatality and injury claims, warranty claims, and consumer complaints stemming from tread separation. The Safety Act did not require that Ford do so. Instead, the Act obligated Ford and other auto manufacturers to notify NHTSA when they determined that a safety defect exists, but there was no mandate for them to share information about possible defects before making that determination.

'TREAD'

The Transportation Recall Enhancement Accountability and Documentation Act (“TREAD”) changed all that. It required new regulations for “Foreign Recall and Safety-Related Campaign Reporting,” as well as “Early Warning Reporting” of fatality and injury claims, warranty data, and consumer complaints to NHTSA even before any defect determination by the manufacturer. TREAD directed NHTSA to complete a total of 21 new projects and rulemakings, which were chronicled in a series of articles in this newsletter. And it added criminal penalties.

Subsequent History

Fast-forward to 2007. Toyota conducted a recall campaign ' without admitting a safety defect ' to replace all-weather floor mats in 55,000 2007 and 2008 Toyota Camry and Lexus ES 350 models because of unwanted acceleration claims attributed to the mats. Toyota re-designed the mats. The claims continued.

Toyota did not take action again until 2009, when a high-speed crash claimed the lives of a California Highway Patrol officer and his family. The officer had been driving a loaner 2009 Lexus ES 350. The crash, captured on a heartbreaking 911 recording that ended with the occupants calling out “Hold on and Pray” before the collision occurred, thrust unwanted acceleration in Toyota and Lexus vehicles into the national spotlight. DOT Secretary Ray LaHood issued a Safety Advisory, cautioning Toyota and Lexus owners to remove the mats, and characterizing the condition as an “urgent safety matter.”

He pressed, and Toyota agreed to conduct a second campaign, this time encompassing 3.8 million vehicles. In a letter written by Toyota's Assistant Manager of Technical Affairs (a former NHTSA employee), Toyota identified the cause of the claims as improperly positioned floor mats and agreed to notify owners to remove the mats, pending the development of model-specific remedies. Toyota again maintained that no defect existed in the vehicles and said so in its letter. Toyota's press materials stated that NHTSA concluded that no defect existed in vehicles when the mats were properly installed.

NHTSA's Response

NHTSA's response was swift. It issued a press release rebuking Toyota for making misleading statements. NHTSA characterized Toyota's recall action as only an “interim measure” that did not correct the underlying design defects in the vehicles. These, according to NHTSA, included pedal to floor clearance and floor-pan configuration ' defects that NHTSA characterized as “a very dangerous problem.”

Ultimately, Toyota would conduct one recall after another in one model after another, for one root cause and then another, in one country after another, until in the U.S. alone, 5.35 million vehicles were recalled for floor-mat interference and 2.3 million for a “sticky accelerator pedal” defect. This time, in its Defect Information Report to NHTSA, Toyota acknowledged the existence of a safety defect in the vehicles. The remedies would include changes to the accelerator pedal design and materials, as well as the installation of so-called “smart pedal” technology, which reduces engine power when a vehicle's computer senses that accelerator and brake pedals are depressed at the same time. Many automakers had already been installing smart pedals, some manufacturers for many years.

The Apology

Toyota's recalls became the largest in history. They received even more intense media scrutiny than Ford-Firestone. When Congressional hearings began, they fueled the publicity even more. At the hearings, Akio Toyoda, the president of Toyota and grandson of the company's founder, appeared and apologized to Congress and the nation for his company's actions. Congressional members were not mollified. They confronted him and other high-ranking Toyota executives with documents uncovered by the investigation. The documents included an e-mail by a top Toyota executive in America ' the Group Vice-President for Environmental and Public Affairs ' saying that “the time to hide this one is over” and “we need to come clean.” A PowerPoint presentation to another Toyota executive included a page entitled “Wins for Toyota” and listed $100+ million saved by limiting the 2007 recall to an “equipment recall.”

Moreover, Toyota's executives acknowledged that Toyota Japan retained all safety defect decision-making authority ' that Toyota's U.S. operations had none and were not involved at all. Secretary LaHood would testify that other foreign auto manufacturers did business differently, involving both U.S. and Japan executives in the safety defect investigation and determination decision-making.

Other Problems

House and Senate members called witnesses who alleged that there were other problems with the vehicles, including a confusing transmission shift selector pattern so that the Neutral position was not clearly marked, and that the keyless ignition system did not enable the driver to understand how to turn off the engine when the vehicle was in Drive. Several consumer advocates asserted that “intermittent electromagnetic interference” could play a role.

Then the other shoe dropped. NHTSA imposed the maximum $16.375 million fine on Toyota for delaying the “sticky pedal” recall. NHTSA's letter said that but for the statutory cap, Toyota “would be subject to civil penalties in the amount of $13.8 billion (2.3 million vehicles at $6,000 per vehicle).” The letter characterized the gravity of Toyota's actions as “severe and potentially life-threatening ' .” Toyota paid the fine without admitting liability.

'Motor Vehicle Safety Act Of 2010'

If this were an article about Toyota's actions and inactions, it could stop here. But it is really about the proposed “Motor Vehicle Safety Act of 2010.” This legislation, engendered by the Toyota recalls, makes TREAD seem minor by comparison. The legislation may be enacted by the time this article is published.

The House and Senate versions vary somewhat, but each would:

• Increase civil penalties, up to $300 million per violation in the Senate bill and $200 million in the House version
  (initial drafts in each Chamber entirely eliminated the cap).
• Mandate rulemaking for the installation of “Smart-Pedal” technologies.
• Mandate that NHTSA consider rulemaking for pedal clearance.
• Direct NHTSA to consider a rulemaking for improving shift selector position conspicuity.
• Mandate new rules for standardizing keyless, “push button” ignition systems to make it easier for drivers to understand how to turn off the engine when the vehicle is in Drive.
• Mandate Event Data Recorders (so-called “crash recorders”), which NHTSA could require to capture pre-crash data that may show if unwanted acceleration occurred.
• Direct NHTSA to set electronic system performance standards, considering the findings of a newly-commissioned study by the National Academy of Sciences of electronic vehicle controls and unwanted acceleration.
• Mandate the involvement of senior executives based in the United States in safety matters, through requirements that executives certify the truthfulness of key documentation submitted to NHTSA.
• Impose civil penalties of $50,000 per day up to $10 million on executives who knowingly provide false certifications ($5,000 per day up to $5 million in the House bill).
• Expand the bases for criminal penalties.
• Impose new prohibitions on former NHTSA employees who contact NHTSA on behalf of industry.
• Grant NHTSA's Administrator “Imminent Hazard” authority to hasten the defect investigation process if the Administrator concludes that there is a substantial likelihood of death or serious injury.
• Eliminate some of the confidentiality protections under TREAD for Early Warning Data submitted by manufacturers, and
• Increase funding for NHTSA to investigate possible safety defects (the House bill imposes fees on manufacturers to pay this).

There is also an extensive provision in the Senate version that protects “whistleblower” employees of auto manufacturers. There are other provisions, but the ones listed above are the most significant. They will all be explained in subsequent articles as the legislation is completed and the new rules take shape.

Important Note

One important end note: The facts and circumstances described in this article are not exhaustive and do not give Toyota's side of the story, or document the steps that Toyota took to improve the safety of its vehicles and its safety decision-making processes following the recalls. The facts were chosen because they are the ones that formed the predicate for the key parts of the impending legislation. In addition, 2007 at the hearings Toyota had presented expert evidence by an authoritative engineering consulting firm that refuted allegations about electromagnetic interference as an alleged cause of unwanted acceleration. That evidence is beyond the scope of this initial article, the first in a series that will follow the course of legislation and regulatory rulemaking stemming from the Toyota recalls, but will be discussed in a later article when the National Academy of Sciences completes its study and NHTSA prepares its rulemakings.

Professor Nicholas J. Wittner, a member of this newsletter's Board of Editors, teaches Product Liability Law and Practice at the Michigan State University College of Law.