Toyota's $1.2 billion fine, GM recall highlight defects in U.S. auto safety

The announcement today by U.S. federal prosecutors of a $1.2 billion payment by Toyota to avoid prosecution over safety problems linked to 37 deaths closes the chapter on a dark moment for the world's largest automaker — just as General Motors struggles to answer questions about its own delayed recall of 1.6 million vehicles linked to at least 12 deaths.

But the Toyota settlement and the GM ignition recall both highlight the key flaw in the safety net that's supposed to protect Americans from dangerous flaws in their vehicles: Just because you have a defect doesn't guarantee anyone will hear — or believe — you.

At least so far, Toyota's crimes from its sudden acceleration and stuck pedal recalls from 2009 and 2010 are an order of magnitude greater than what's been shown from GM. GM engineers knew about a problem as early as 2001 with Chevy Cobalts and Saturn Ions shutting off due to bad ignition switches, but failed to ask for a recall until earlier this year. Toyota executives also knew about potential problems with floor mats and gas pedals for years, but even after a preliminary recall misled consumers and the National Highway Traffic Safety Administration about the true scope and nature of the defects until forcefully threatened by regulators in early 2010. The automaker eventually recalled 9.4 million vehicles.

Had Toyota not settled with the U.S. Department of Justice, federal prosecutors were prepared to charge the company with wire fraud for selling thousands of vehicles from late 2009 through March 2010 that its engineers knew to have defective accelerator pedals. And while $1.2 billion will ding the profits of the world's largest automaker for a quarter, the total could have been far higher; had NHTSA's fines not been limited by federal law to $17 million per defect case, it could have fined Toyota $13 billion.

It's still the largest penalty ever paid by an automaker in U.S. history.

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"Put simply, Toyota’s conduct was shameful," said U.S. Attorney General Eric Holden. "It showed a blatant disregard for systems and laws designed to look after the safety of consumers. By the company’s own admission, it protected its brand ahead of its own customers.

"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."

Well before today's settlement, Toyota had vowed to change how it handled defects, with new executives, committees and procedures that have sped its recalls in the years since; the deal with federal prosecutors adds an outside monitor for three years to ensure the company lives up to its promises. But those changes will only affect one part of the system meant to stop defective cars from injuring or killing their occupants. And as the GM recall shows, that system has defects of its own.

Every year, automakers issue roughly 150 to 180 recalls; last year, those campaigns affected more than 16 million cars and trucks, with Toyota alone repairing 5 million vehicles with safety defects. In the majority of cases, the automaker issues the recall on its own volition, and in most cases there are no injuries reported. But the remainder come at the urging of the National Highway Traffic Safety Administration, which collects consumer complaints and data from automakers about potential defects.

NHTSA often spars with automakers over defects, but government auditors and safety experts have criticized the agency for years for understaffing the defects office and not having strong enough data tools to spot problems from the thousands of owner complaints and other data it receives every year. In the GM ignition recall, dozens of owners complained to NHTSA and GM in the 13 years before GM acted; a few reporters even publicly flagged their problems with stalling Cobalts, yet the agency didn't open an investigation nor respond to worried consumers.

Those battles run both ways. It's common for automakers to fight with NHTSA for months or even years to avoid the cost and embarrassment of a defect; in several cases, automakers have even said they were issuing a recall not because they believed a vehicle posed a safety problem, but to simply put a NHTSA probe behind them.

It's not just Toyota who's been caught working the refs. Last year, Ford paid NHTSA a $17.3 million fine over the 2012 recall of 530,000 Ford Escape and Mazda Tribute SUVs for a defect that could lead to a stuck throttle, a problem linked to several crashes and one death. NHTSA had first asked Ford about the problem in July 2012, and Ford had issued a recall days later — but regulators later found the automaker had twice inspected crashed Escapes with the problem, dating back to June 2009, and done nothing.

Like Toyota, GM has already vowed to strengthen its rules around recalls, appointing a new executive in charge of recalls. It will now face the same gantlet Toyota did: congressional hearings, federal investigations and, in all likelihood, sizable government fines and legal settlements. What's not clear today is whether these cases will change how well automakers listen to their own customers who complain of safety defects — or whether those paid to protect owners will fix their own machines.