Thursday, December 27, 2012

Toyota’s $1.1 Billion Payout: What It Means For Owners And More

originally appeared in The Wall Street Journal:

Toyota has reached a proposed settlement in a class-action lawsuit over cases of so-called unintended acceleration that were reported in 2009-10. The cases, and subsequent recall of more than 8 million cars, were a serious black eye for Toyota, from which the company is only now recovering.

Toyota is set to pay out up to $1.1 billion if the settlement is approved. If you own, or owned, a Toyota in the last few years, it’s worth checking for the details. Once the settlement comes into effect, owners will be able to enter their vehicle identification number at that site, and find out about any compensation potentially available to them.

Toyota owners, past and present:

- If you sold your Toyota, or returned a leased one prior to the lease expiry, a $250 million fund will be established to compensate you for the reduction in the value of your car. If the fund doesn’t have enough money to cover the full loss in value for every owner, it will pay out a pro-rated amount.

- If you are still driving one of the vehicles listed in the settlement, Toyota will pay for a brake override system to be installed in your car, or make a cash payment in lieu of the installation. The system, the settlement says, “will automatically reduce engine power when the brake pedal and the accelerator pedal are applied simultaneously under certain driving conditions.” If your vehicle is not eligible to have the system installed, Toyota will make a cash payment of up to $125.

- Warranties on effected vehicles will be extended for at least three years, and up to ten years or 150,000 miles. The extended warranties will only guarantee specific systems mentioned in the lawsuit: the engine control module, cruise control switch, accelerator pedal assembly, stop lamp switch and throttle body assembly.

Toyota dealers:

It’s a good time to be a Toyota dealer. Not only are sales up almost 30% this year, and the company is again vying for the title of world’s number one auto maker: dealers can now expect a rush of customers coming in to have their cars worked on, with someone else picking up the tab. And while the customers are there to get their free brake override system installed, it would only be prudent to check for anything else that might need fixing, right? Perhaps the air conditioning system needs to be re-gassed? Fuel injectors need cleaning?


The timing of the settlement suggests Toyota is confident it has recovered from the reputational damage of the original controversy and would rather put an end to these legal headaches rather than fight a drawn out battle through appeal after appeal. This is Toyota’s style – it likes to settle these things, rather than fight them to the bitter end. Worth noting here: even though this settlement covers an estimated 16 million cars, not all owners will step forward and claim the compensation offered — according to Consumer Reports, the average response rate to an auto recall is less than 75%.

The lawyers:

In a rare and unexpected development, the real winners here are the lawyers. Who’d have thought? $200 million will be put aside to compensate the lawyers for their hard work, and another $27 million for their expenses — a total nearly as high as the amount allocated to compensate owners for the loss in value of their vehicles. Split between 25 law firms and about 85 attorneys, this case has been a nice little earner for those in on the action. As the WSJ reports, about 18% of the total settlement will go to the lawyers, and that is the largest percentage ever for a class-action payout of more than $1 billion.

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