Toyota Motor Corporation
) agreed to a $1.2 billion settlement with the U.S. Attorney's
Office for the Southern District of New York in relation to the
criminal charges for problems in accelerator pedals and floor
mats of its cars, which led to sudden acceleration and even
crashes. This is the highest penalty imposed on any automaker and
is 35 times higher than the maximum penalty the National Highway
Traffic Safety Administration (NHTSA) can impose.
Toyota also admitted to misleading customers about the
problem. The investigation regarding the matter was started in
Feb 2010 although the automaker had been reportedly aware of the
problem since 2007. Toyota initially failed to recall cars with
the defective parts and continued to manufacture new cars using
them despite being aware of the safety risk associated with them.
The company finally issued a recall of 8 models after a crash
killed an entire family but left out 3 other models that had the
Toyota will record the settlement amount as after-tax charges
against earnings in the fiscal year ending Mar 31, 2014. This
will significantly reduce the company's net income. However, the
financial position of the company will not be affected as it had
cash and cash equivalents of ¥1,843.4 billion ($18.4 billion) as
of Dec 31, 2013.
The U.S. Justice Department will use the settlement amount to
compensate people who were affected by Toyota's activities.
Moreover, Toyota will be charged with wire fraud, although the
charge will be dismissed after three years if the automaker pays
the settlement amount and fulfills the terms of the
Despite this settlement, Toyota is still facing an
investigation by the Securities and Exchange Commission.
Additionally, there are innumerable civil lawsuits against the
company for deaths and injuries.
Toyota had earlier paid $1.6 billion to settle a class action
lawsuit related to sudden acceleration of cars. The company also
incurred $1.1 billion during the recall of the affected vehicle.
Moreover, it lost vehicle sales worth $880 million.
Currently, Toyota carries a Zacks Rank #2 (Buy). Some other
automobile stocks worth considering are
Tata Motors Limited
Tesla Motors, Inc.
). TTM and DDAIF sport a Zacks Rank #1 (Strong Buy), while TSLA
has a Zacks Rank #2.
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