Toyota Motor Corp. (TM: Quote) on Wednesday agreed to pay up to $1.4 billion to settle a U.S. class action lawsuit by owners whose vehicles were prone to abrupt and unexplained acceleration.
The settlement, which is the largest in U.S. automotive history, will include provision of vehicle-parts warranty for up to 16 million current car owners, as well as installation of a brake-override system in about 3.25 million vehicles.
Complaints against Toyota began piling up in 2009-10 after drivers reported that their vehicles suddenly and unintentionally accelerated.
Toyota all along maintained that the vehicles were free from electronic flaws causing the acceleration, and federal authorities were not able to find any defects in Toyota's source code that could cause these events.
The case against Toyota was consolidated as a class action lawsuit in 2010 in the U.S. District Court in California under Judge James Selna.
Attorney Steve Berman, managing partner of Hagens Berman and who represented the vehicle owners, said the settlement with Toyota is valued between $1.2 billion and $1.4 billion. Judge Selna will review the settlement on December 28 and will grant preliminary approval if it is deemed to be fair.
As per the terms of the settlement, Toyota will install a brake-override system in vehicles subject to floor mat entrapment recalls. Toyota will also create a fund of $250 million to be paid to former owners who sold their cars at a reduced rate as news of the acceleration problem gained publicity.
Also, a separate fund of $250 million will be established to compensate current owners whose vehicles are not eligible for a brake-override system.
According to media reports, Toyota's costs related to the recalls and probes probably exceed $3 billion. Toyota estimated in 2010 that the costs of recalls and lost sales globally would be around $2 billion, excluding the latest settlement. Toyota still faces separate lawsuits related to the 2009-10 recalls.
Toyota recalled more than 5.3 million vehicles in the U.S. for problems related to ill-fitting floor mats and an additional 2.77 million for faulty accelerator pedals.
Toyota closed at $90.36, down 0.90%, on a volume of about 0.6 million shares on the NYSE.
by RTT Staff Writer
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