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Monday, Feb 22, 2010 2:13 PM UTC

Toyota memo boasts of saving $100M on recall

Internal memo from 2009 comes out ahead of congressional hearings this week

By and

Topics: Toyota,

Claims by Toyota in internal documents that it saved money by obtaining a limited recall from regulators in 2007 create an even bigger challenge for the automaker’s president when he testifies before U.S. lawmakers this week over quality and safety lapses.

Toyota officials said they saved $100 million by successfully negotiating with the U.S. government on a limited recall of floor mats in some Toyota and Lexus vehicles, according to new documents shared with congressional investigators.

Toyota, in an internal presentation in July 2009 at its Washington office, said it saved $100 million or more by negotiating an “equipment recall” of floor mats involving 55,000 Toyota Camry and Lexus ES350 vehicles in September 2007.

The savings are listed under the title, “Wins for Toyota — Safety Group.” The document cites millions of dollars in other savings by delaying safety regulations, avoiding defect investigations and slowing down other industry requirements.

The documents could set off alarms in Congress over whether Toyota put profits ahead of customer safety and pushed regulators to narrow the scope of recalls. Two House committees are holding hearings this week on the Japanese automaker’s recall of 8.5 million vehicles in recent months to deal with safety problems involving gas pedals, floor mats and brakes.

“You can feel that the staff were thinking more about company profits than customers,” Mamoru Kato, an analyst at Tokai-Tokyo Securities, said in an e-mail after viewing the documents. “It’s unfavorable for Toyota ahead of the hearings.”

The world’s largest automaker has been criticized for responding too slowly to complaints of sudden acceleration in its vehicles, threatening to undermine its reputation for quality and safety.

The documents were turned over to the House Oversight and Government Reform Committee — which is scheduled to hold a hearing Tuesday — and obtained by The Associated Press on Sunday. The presentation was first reported by The Detroit News.

Toyota President Akio Toyoda is scheduled to testify at a separate House Energy and Commerce Committee hearing on Wednesday.

“This is any executive’s worst nightmare — a damning document comes out and exposes your company as having basically gone slow and tried to delay addressing significant safety problems with their product,” said Jeff Kingston, director of Asian studies at Temple University Japan.

Toyota said in a statement: “Our first priority is the safety of our customers and to conclude otherwise on the basis of one internal presentation is wrong. Our values have always been to put the customer first and ensure the highest levels of safety and quality.”

Company spokesman Paul Nolasco in Tokyo had no further comment, saying only that the company handed over some documents to the committee.

Transportation Department spokeswoman Olivia Alair called the document “very telling. And that’s why Secretary (Ray) LaHood has been saying we’re going to hold Toyota’s feet to the fire and make sure they do what’s necessary to make their cars safe for the driving public.”

The new documents show the financial benefit of delay. In the presentation, Toyota said a phase-in to new safety regulations for side air bags saved the company $124 million and 50,000 man hours. Delaying a rule for tougher door locks saved $11 million.

On defect regulations, the document boasts that Toyota “avoided investigation” on rusting Tacoma pickup trucks. The National Highway Traffic Safety Administration investigated the case in 2008 but closed it without finding a safety defect. Toyota agreed to buy back certain rusty pickups, inspect other and extend warranties.

The document lists seven “Wins for Toyota & Industry,” including “favorable recall outcomes,” “secured safety rulemaking favorable to Toyota” and “vehicles not in climate legislation.” Another page lists “key safety issues,” including “Sudden acceleration on ES/Camry, Tacoma, LS etc.”

In one passage, the document says Toyota “negotiated ‘equipment’ recall on Camry/ES re SA; saved $100M+, w/ no defect found.”

NHTSA had launched an investigation in March 2007 over allegations that floor mats were interfering with accelerator pedals. Toyota told the government a month later that there was “no possibility of the pedal interference with the all-weather floor mat if it’s placed properly and secured.”

By that August, the government had connected the problem to a dozen deaths and a survey of 600 Lexus owners discovered 10 percent reported sudden or unexpected acceleration. But the recall in September 2007 was limited to 55,000 Camry and ES350 vehicles to replace the floor mats.

The 10-page internal presentation was dated July 6, 2009, less than two months before a high-speed crash near San Diego killed a California highway patrol officer and his family and reignited concerns over sudden acceleration in Toyotas.

In October 2009, Toyota issued its largest-ever U.S. recall, involving about 4 million vehicles, over concerns of pedals getting stuck in floor mats.

The presentation lists Yoshi Inaba, Toyota’s chief executive in North America, on its cover. Inaba is scheduled to testify before the House Energy and Commerce Committee on Wednesday, along with Toyoda and Jim Lentz, president of Toyota Motor Sales USA. The committee is also expected to hear from LaHood, NHTSA Administrator David Strickland and safety advocates.

The Oversight Committee is holding a hearing Tuesday with Lentz, LaHood and Strickland. A Senate committee is planning a March 2 hearing.

Toyoda arrived in the United States on Saturday and appeared to be preparing for the hearing, the Yomiuri newspaper, Japan’s largest, reported Monday. Nolasco, the Toyota spokesman, said the company does not comment on the moves of individual executives, citing security reasons and company policy.

Toyota has said it will create an outside review of company operations, do a better job of responding to customer complaints and improve communication with federal officials.

Toshiro Yoshinaga, an analyst at Aizawa Securities in Tokyo, said that Toyota’s actions as seen in the documents shows the company believed the problems with its vehicles were unlikely to become a major issue and illustrate the company’s weakness in crisis management.

“Toyota’s perception was extremely optimistic,” he said. “It’s sense of crisis has been lacking.”

Yoshinaga also said the documents put the company in a futher bind ahead of Toyoda’s testimony.

“But a pinch can also be a chance,” he said. “If Toyoda can offer a proper explanation then the issue can settle down. If not, then it won’t.”

Temple Universty’s Kingston said Toyoda must make clear that the company has learned a lesson from growing too quickly and losing track of quality control, though even that will be unlikely to stave off harsh criticism from lawmakers.

“He’s going to be taking an awful pummeling, I think,” Kingston said.

—-

Ken Thomas reported from Washington. Associated Press Writer Malcolm Foster in Tokyo contributed to this report.

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