Toyota Shares Rise After Lawsuit Settlement

Thursday, 27 Dec 2012 03:46 PM

 

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Shares of Toyota Motor Corp. rose in the U.S. and Japan Thursday after Asia’s largest automaker said it’s taking a $1.1 billion charge to settle claims that recalls for unintended acceleration hurt the value of U.S. customers’ vehicles.

In late trading on the New York Stock Exchange, Toyota's American depositary shares were up 2.3 percent at $92.39. Toyota shares rose 2.6 percent in Tokyo to the highest level in 35 months.

“Within the industry, we probably say this is the cost of business,” said Alan Baum, principal of auto-industry researcher Baum & Associates in West Bloomfield, Michigan. “This settlement is a way to deal with uncertainty from the recalls and investors like to see uncertainty go away.”

The settlement, pending approval by a federal court judge in Santa Ana, California, covers costs such as cash payments to customers, Toyota said yesterday in a statement. Including as much as $200 million in legal fees, the deal is valued at as much as $1.4 billion, a record in the U.S. in terms of financial scale and number of vehicles, according to Seattle-based Hagens Berman Sobol Shapiro LLP, which represented the plaintiffs.

The accord highlights how more than three years after Toyota began recalling a record number of vehicles -- totaling more than 10 million in 2009 and 2010 -- the maker of the Camry is still dealing with the aftermath of problems related to unintended acceleration. Lawsuits claiming personal injuries and deaths caused by such incidents remain pending, with the first federal trial set for February in Santa Ana.

Sales Rebound

The settlement comes as sales of Toyota, Lexus and Scion vehicles rebound in the U.S., up 29 percent this year through November, more than double the industry’s 14 percent growth.

Sales in that market may reach 2 million this year, the highest since 2008, U.S. Group Vice President Bob Carter said last month.

For U.S. carbuyers, the settlement is “likely going to be a neutral impact,” said Alec Gutierrez, industry analyst for Kelley Blue Book, a vehicle pricing and data company in Irvine, California.

“Any negative perception on the part of consumers probably went out the window at the end of 2011,” he said. “At this point in terms of new car sales, they’ve regained their position in the market.”

Toyota said separately in Tokyo yesterday that it expects vehicle sales to climb 22 percent to a record 9.7 million units this year and climb about 2 percent next year.

Nomura Holdings Inc. raised its target price on the stock 19 percent to 4,800 yen, citing Toyota’s earnings-growth prospects.

Reputation Restored

Quality ratings show Toyota again ranks at or near the top among mass-market brands. In its 2012 Vehicle Dependability Study, J.D. Power & Associates honored eight Toyota and Lexus brand cars -- the most for a single automaker -- as best in their segment up from four in 2010.

In a Consumer Reports ranking of customer value released today, Toyota and Lexus models placed at the top in six of 10 categories based on criteria including performance and reliability, the magazine said today.

The Prius, the world’s best-selling hybrid, won the best new-car title in the magazine’s annual ranking, unseating Honda’s Fit compact, which occupied top spot for the past four years.

Class Action

The settlement, filed in court yesterday, settles the economic-loss portion of the Toyota sudden-acceleration lawsuits, filed as class, or group, actions on behalf of Toyota owners who contended the company drove down the value of their vehicles by failing to disclose or fix defects. The cases were combined in a multi-district litigation before U.S. District Judge James V. Selna, who is also handling the federal personal injury and death suits. The resolution asks Selna to certify the lawsuit as a class action for settlement purposes.

“We concluded that turning the page on this legacy legal issue through the positive steps we are taking is in the best interests of the company, our employees, our dealers and, most of all, our customers,” Christopher P. Reynolds, vice president and general counsel for Toyota’s U.S. sales arm, said in the statement.

“This agreement marks a significant step forward for our company, one that will enable us to put more of our energy, time and resources into Toyota’s central focus: making the best vehicles we can for our customers and doing everything we can to meet their needs,” he said.

Record Recall

Lawyers for both sides are asking for immediate preliminary approval, Steve Berman, a lead plaintiffs’ attorney, said in an interview yesterday. The lawyers will be seeking final approval in June, after which Toyota owners will get paid, Berman said.

Negotiations for the settlement “have been going on for a year and a half,” Berman said Thursday on Bloomberg TV. “This litigation has been very hard fought.”

He estimated Toyota has had “more than $300 million” in litigation expenses related to the case.

Mike Michels, a spokesman for the company’s U.S. unit, declined to discuss Toyota’s legal costs.

The episode began with a September 2009 announcement that the Japanese automaker was recalling 3.8 million Toyota and Lexus vehicles because of a defect that may cause floor mats to jam accelerator pedals. The company later recalled vehicles over defects involving the pedals themselves.

The National Highway Traffic Safety Administration ended its probe of Toyota models in February 2011 after NASA, the U.S. space agency, said it found no electronic causes of unintended acceleration during a 10-month review. Safety advocates and some lawmakers have suggested electrical faults as a reason.

Fines Paid

Toyota has paid $66.2 million in fines to the U.S. NHTSA for how some of the recalls were conducted. The company last month agreed to pay $25.5 million to settle an investor lawsuit claiming Toyota’s alleged failure to disclose information on unintended acceleration problems caused the stock to plunge in 2010.

“This is not a huge, long-term issue for Toyota, but it will continue to make them just one of many companies offering good products,” Baum said. “They no longer have the advantage of being viewed as something special relative to competitors.”

The one-time charge will be reflected in earnings for the quarter ending Dec. 31, Toyota said.

Additional Costs

The writedown is separate from the $2 billion in total costs related to the recalls that Toyota had projected in 2010, said Keisuke Kirimoto, a Tokyo-based spokesman.

Toyota, which didn’t admit to any defects in its vehicles or any wrongdoing in the settlement, said it will begin a customer-support program providing coverage for certain vehicle components, and will retrofit additional non-hybrid vehicle models subject to a floor-mat recall with a free brake-override system.

The carmaker will also offer cash payments to eligible customers who sold or turned in their leased vehicles in 2009 or 2010.

The costs to the company will include $250 million in cash to former Toyota owners who sold their vehicles and $250 million for people who still own the vehicles, in addition to lawyers’ fees, Berman said.

The settlement “covers any car that had an electronic throttle control system,” Berman said.

Toyota will install a brake-override system in an estimated 3.25 million vehicles as part of the agreement. Eligible vehicles for brake-override systems are non-hybrids that were subject to floor-mat entrapment recalls, according to the settlement filed to the court.

Other Settlements

Toyota’s $1.1 billion writedown also covers an agreement in principle to resolve a lawsuit brought by the district attorney of Orange County, California, against Toyota, Julie Hamp, a company spokesman, said yesterday. The Orange County suit claimed violations of consumer-protection laws through the sale of allegedly defective vehicles.

The writedown also includes an agreement to settle a multistate investigation by attorneys general in the U.S., she said.

The case is In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation, 8:10-ml-02151, U.S. District Court, Central District of California (Santa Ana).

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Jamie Butters at jbutters@bloomberg.net

© Copyright 2014 Bloomberg News. All rights reserved.

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