Toyota Shareholders Sue Over Stocks and Recalls

By: Jennifer Hong
Staff Writer
Published: Mar 22, 2010

Toyota shareholders sue claiming company executives misled investors and the public regarding the recalls.

Toyota shareholders sue over the drop in the automaker's stock price. They also claim that the company executives deliberately misled investors and the public about the depth of accelerator problems. There are at least three proposed class-action lawsuits filed against the auto manufacturer by investors.

The suit alleges that the company gave false initial assurances that the sudden acceleration problem was a simple matter. As Toyota brought solutions, such as floor mats for gas pedals, the price in its stock would increase.

The cases are part of a growing number of lawsuits against the automaker. The allegations and claims against its acceleration problems by crash victims and families is also growing. Investors allege that Toyota has known about faulty electronic throttling for nearly a decade.

However, the company has not announced any recalls involving flaws in its electronic throttling systems. Investors allege that Toyota has denied any problems repeatedly. Since the sticky pedal recall in late January, the company's total U.S. market capitalization has fallen 13 percent to $135.87 billion.

Vehicle Recalls Involving Unintended Acceleration

Toyota announced three separate recalls in 2009 and 2010. The first two were announced with the assistance of the U.S. National Highway Traffic Safety Administration (NHTSA) after several vehicles experienced unintended acceleration. The first recall, on November 2, 2009, was to correct a possible incursion of an incorrect or out-of-place front driver's side floor mat into the foot pedal well.

The second recall, on January 21, 2010, was announced after some crashes were shown not to have been caused by floor mats, but from a sticking accelerator pedal. This is what started the "unintended acceleration" fiasco. Toyota announced the third recall for hybrid anti-lock brake software in February 2010.

As of January 28, 2010, Toyota had announced recalls of approximately 5.2 million vehicles for the pedal entrapment/floor mat problem. An additional 2.3 million vehicles were also recalled for accelerator pedal problems. Approximately, 1.7 million vehicles are subject to both.

The following day, Toyota widened the recall to include 1.8 million vehicles in Europe and 75,000 in China. By then, the worldwide total number of cars recalled by the automaker stood at 9 million. Sales of multiple recalled models were suspended for several weeks as a result of the accelerator pedal recall.

As of January 2010, 21 deaths were alleged due to the pedal problem since 2000. However, following the January 28 recall, additional NHTSA complaints brought the alleged total to 37. The number of alleged victims and reported problems sharply increased following the recall announcements.

Government officials, automotive experts, Toyota, and members of the general public contested the scope of the sudden acceleration problem and the veracity of victim and problem reports. Various parties attributed sudden unintended acceleration reports to mechanical, electric, and driver error causes. The recalls further led to NHTSA and auto investigations, along with multiple lawsuits.

2010 Prius Hybrid Anti-Lock Brake Software

On February 3, 2010, the NHTSA announced that it had received reports from 102 drivers claiming there was a problem with the 2010 Prius braking system. Three of these reports claimed that brake problems had led to the car crashing, with one accident occurring when a Prius crashed head on into another car. The Prius was not involved in the second recall, although it had been involved in the first recall involving floor mats.

Toyota said that it was investigating the reports, and that it would be "premature to comment." On February 3, 2010 the Japanese Transport Ministry began conducting an investigation on the redesigned Prius. The company said that it was aware of 77 Prius brake complaints in Japan.

On February 4, 2010, the NHTSA announced it had opened an investigation into the Prius brake problems. Toyota also announced that it was caused by a software glitch. The company promised to look into a solution to solve the problem.

An internal NHTSA memo indicated that the problem was the "short delay" in regenerative braking when hitting a bump, resulting in increased stopping distance. On February 6, 2010, Toyota said that it had fixed the braking problem on Prius models built since late January 2010. The problem was fixed by uploading a software update for the ABS system.