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Toyota warned dealers of crash risk in 2007


Toyota Motor Corporation President and CEO Akio Toyoda addresses employees at the Toyota Motor Manufacturing Plant in Georgetown, Kentucky, February 25, 2010. REUTERS/ John Sommers II
Toyota Motor Corporation President and CEO Akio Toyoda addresses employees at the Toyota Motor Manufacturing Plant in Georgetown, Kentucky, February 25, 2010. REUTERS/ John Sommers II

By Bernie Woodall, Soyoung Kim and Kevin Krolicki

DETROIT (Reuters) - When Toyota Motor Corp concluded that seemingly harmless floormats posed a danger in all of its cars and trucks, the automaker sent a stark warning intended to prevent crashes.

"If the floormat is NOT properly placed and secured, it could slip and interfere with the movement of the pedals during driving and may cause an accident," Toyota said. "NEVER install more than one floor mat at a time in the driver's seating position."

The only problem: almost no one in the American driving public saw the warning, which was issued in September 2007 -- two full years before Toyota announced the first in a string of recalls taking aim at the problem of unintended acceleration. That is because it was sent as a so-called "technical service bulletin" to about 1,500 Toyota and Lexus dealers.

A nearly identical bulletin went out in April 2008, cautioning that improperly installed floormats could cause crashes right across the Toyota lineup, in the Camry, Corolla, Matrix, Sienna, Tundra, Sequoia and Land Cruiser.

In both cases, the notices quietly provided to Toyota dealers and filed with the National Highway Traffic Safety Administration carried a more explicit warning than anything that regulators or company officials said to the public.

In September 2007, under an arrangement negotiated with Toyota, NHTSA issued a six-paragraph "consumer advisory" that urged owners of the Camry and the Lexus ES 350 to swap out recalled all-weather floormats for new ones and to make sure that they were secured to keep from slipping forward and "causing the vehicle to accelerate uncontrollably."

NHTSA also "strongly urged" drivers of the popular Prius hybrid and Avalon sedan to make sure that their floormats were set up properly.

But nothing in that public message, which was reviewed by Toyota before publication, referred to the risk of crashes or to the potential danger to other Toyota and Lexus vehicles.

As Toyota struggles to bounce back from a safety crisis that has tarnished its reputation and as regulators probe what went wrong, a key questions is how an industry-wide practice of sending technical notices to auto dealers was allowed to morph into what critics describe as a channel for conducting recalls in all but name, extending warranties and sending safety notices outside the glare of public scrutiny.

The issue is not unique to Toyota. Safety advocates starting with Ralph Nader have argued that dealer service bulletins can become a way for automakers to conduct "silent recalls" or to keep problems from the public view even as they work to correct them.

In 2004, GM was fined $1 million for attempting to quietly fix a problem with windshield wiper assemblies on the factory line rather than with a recall notice for vehicles already on the road.

And just last month, Ford Motor Co also faced criticism when it disclosed that it had instructed dealers how to fix a glitch in the software controlling braking in its Fusion hybrid sedan. The No. 2 U.S. automaker only went public with the problem, which it does not consider a safety threat, after Consumer Reports said that one of its test drivers had experienced what appeared to be a loss of braking power.

But Toyota's use of this less public channel is especially sensitive. What the world's largest automaker knew about the risks of sudden acceleration and other potential safety problems and how it acted to address those issues is at the core of dozens of pending consumer lawsuits.

It is also at the center of an ongoing investigation by NHTSA into whether Toyota provided all of the information that safety regulators required in a timely way. That probe could result in a largely symbolic but embarrassing fine. Potential penalties are capped at $16.4 million.

"We're working expeditiously to make sure that Toyota provides us all the necessary information to complete our inquiry," a NHTSA official said on condition that he not be named.

A Reuters review of the technical service bulletins sent by Toyota in recent years shows the automaker used the process to address quality and potential safety problems on hundreds of thousands of vehicles.

Such repairs outside the recall system provide a counterpoint to Toyota's claim that it has outperformed the industry by limiting vehicle recalls over the past decade to just 11 percent of the total, less than its 13 percent U.S. market share.

That message was the centerpiece of a Toyota fact sheet handed out by the automaker in late February in Washington, just as Toyota Chief Executive Akio Toyoda was finishing up a grueling day of testimony before a U.S. congressional panel.

A RECALL BY ANY OTHER NAME?

All major automakers routinely send technical service bulletins. NHTSA says it receives and reviews a minimum of 5,000 of them a year, dwarfing the number of recalls. Toyota, for example, sent 37 bulletins on its 2009 model-year vehicles, including the floormat warning. By contrast, it launched just nine recalls during the year.

The documents are usually written in a no-nonsense, flow-chart heavy style. They often deal with issues of consumer satisfaction that have nothing to do with safety -- everything from the performance of radio receivers to how mechanics should address complaints about musty smells from heating and cooling systems.

Under the law, automakers are not required to undertake a recall for a vehicle unless a defect presents an "unreasonable risk of death or injury," or in the less common cases when a vehicle fails to meet the minimum safety standards set by regulators.

But in practice, the question of whether a defect exists and what constitutes an unreasonable risk quickly becomes a gray area, officials and automakers say. For that reason, NHTSA has operated mostly by negotiating safety actions with automakers rather than forcing the process into court where it would have to prove its case against a manufacturer.

In 1966, in part because of Nader's critique of Detroit, Congress passed the first U.S. auto safety law, the National Traffic and Motor Vehicle Safety Act.

Nader said policy-makers have mistakenly gone soft in allowing NHTSA to treat the auto industry as a negotiating partner rather than as a potential legal adversary.

"NHTSA has the most powerful subpoena power of any regulatory agency in Washington but they never use it," Nader said in an interview. Without the threat of that big stick, he said "the automotive companies revert to their usual form, which is to try to cover up and not face the music."

Toyota declined to comment specifically for this report.

The automaker, which has recalled some 8.5 million vehicles worldwide in recent months, says that it is confident that ongoing recalls will fix the risks in its vehicles that have been identified. Reported episodes of unintended acceleration in Toyota vehicles over the past decade have been linked to 51 U.S. deaths.

Toyota also says that a service bulletin should not be considered a "secret internal document," as the memos are copied to NHTSA and available to the public on request for a fee. "Federal law requires that (bulletins) from every vehicle manufacturer be made available to independent service providers and the public," Toyota said in a statement this week.

Critics are not convinced. "I call it a cover-up myself," said Joan Claybrook, NHTSA chief during the Carter administration and one of the experts called to testify on the Toyota safety crisis before Congress in a series of hearings this year.

Toyota, she said, appeared to have recognized that drivers faced much wider risks from floormats than it had communicated to consumers based on a review of the two related service bulletins it sent to dealers in 2007 and 2008.

The second of those notices went out 16 months before the August 2009 crash near San Diego that killed off-duty California Highway Patrol officer Mark Saylor, his wife, teenage daughter and brother-in-law. Toyota has blamed an improperly installed floormat in the Lexus ES 350 for the deadly crash and launched what was then the largest recall in its history a month after the accident.

"They knew that there was a problem, but they downgraded it," Claybrook said of Toyota. She added she would lobby for changes to U.S. safety regulation that would make it easier for consumers to see auto service bulletins.

'THEY ROLLED THEIR EYES IN DISBELIEF'

In September 2007, under pressure from NHTSA, Toyota had issued a recall for 55,000 all-weather floormats on the Camry and the Camry-derived Lexus ES 350. That narrowly tailored recall saved Toyota over $100 million, its Washington-based staff later boasted in a presentation made public in the congressional hearings on the automaker's safety crisis.

By September 2009, when it filed its final update with the government, Toyota had replaced less than 40 percent of the floormats. Most owners simply never responded to the recall letters.

Many recalls end up with low response rates, a chief complaint by safety advocates and industry executives alike. But in this case, NHTSA officials also worried the Toyota recall would not go far enough because consumers were not aware of the danger from floormats, a piece of rubber intended to keep vehicle carpets tidy.

In a 2007 meeting, NHTSA officials had concluded that consumers were warning of "extremely dangerous safety" risks from "floormat interference" in Toyota vehicles, according to notes submitted to Congress. "Owners, retailers, and technicians do not associate floormats with this level of risk," NHTSA officials had concluded.

Despite that red flag, U.S. safety regulators did not raise an objection when Toyota sent the notice to its U.S. dealers warning that all of its 2008 Toyota and Lexus vehicles were at risk of crashing unless floormats were properly installed.

"At the time, NHTSA thought that Toyota was being proactive in reminding dealers of the importance of correct floormat installation," said the current NHTSA official speaking on condition that he not be named.

The decision to issue those bulletins came in a rushed set of negotiations between Toyota and NHTSA officials in August 2007, email records released by congressional investigators show.

The point man in arguing the case for Toyota was Chris Santucci, a former NHTSA official now employed by the automaker.

At the time, NHTSA officials were looking into what were then about 35 complaints of acceleration issues with the Lexus ES 350, records show, but at first the agency did not show a high level of concern.

In a report to other Toyota executives on his visit to NHTSA on August 22, 2007, Santucci suggested that U.S. regulators either failed to take the floormat issue seriously or questioned whether Toyota was doing so.

"I ran into a lot of different investigators and (Office of Defect Investigation) staff, and when asked why I was there, when I told them for the ES 350 floormats, they either laughed or rolled their eyes in disbelief," Santucci wrote.

The records show that NHTSA safety investigators raised other steps that Toyota could consider to improve vehicle safety. Those included adding the kind of brake override system it is now rushing into use across its line-up or allowing drivers to turn off cars with push-button starters, such as the Prius, by repeatedly tapping on the button rather than holding them down for three seconds.

But Santucci pushed Toyota's favored approach of sending service bulletins to dealers in two separate conversations with safety investigators who by then conveyed the idea that "NHTSA is very serious," according to his email.

NHTSA was apparently satisfied. Just over two weeks after Toyota sent its first floormat bulletin to dealers, the agency closed its investigation with only a limited public warning.

"Depending on vehicle design, it is possible for unsecured floormats to interfere with accelerator or brake pedals in a wide range of vehicles," the agency said in a September 26, 2007 consumer advisory.

BULLETINS ON OIL LEAKS AND RUST

Other Toyota bulletins sent to dealers in the past two months have detailed fixes that are not being treated as recalls but appear to fall in the gray area that includes potential safety issues, according to a review by Reuters, safety experts and the policies of rival automakers.

Owners of 2000 to 2003 model-year Tundra trucks in warm-weather U.S. states are being told that they can take their trucks in for inspection to see if a rear part of the frame has become dangerously rusted.

In November last year, Toyota had recalled Tundra pickups sold in cold-weather states where the risk of damage from winter road salt is higher. The extended repairs were called a "special service campaign" rather than a recall.

Toyota warned in its notice to dealers that the frame rust could "cause a crash without prior warning." Spare tires could drop from the truck during driving, it said. The worst case: "The fuel tank may drop to the ground and be dragged or separated from the vehicle." Toyota's closest competitors, Honda, Nissan and Hyundai, said they would not extend an existing recall with a service bulletin.

Toyota launched a "limited service campaign" in February to fix almost 934,000 vehicles with a potentially faulty oil hose. The repair, which does not count against Toyota's growing recall tally, was communicated first to dealers.

The automaker confirmed the repair campaign on March 1 after it was reported by Reuters and other media. The vehicles affected by the repair included the Camry, Avalon, RAV4, Lexus ES 350 and RX 350. "Toyota is currently investigating how this condition may affect other Toyota vehicles," the automaker said in its talking points for dealers.

A search of the NHTSA complaint database shows four cases where consumers reported the problem causing spray of oil while driving and engine smoke or fire. "I am concerned that something like this might happen with catastrophic results," the owner of an RX 350 wrote to safety regulators in August 2009. A RAV4 owner in California said the small crossover caught fire on the interstate in February 2009.

A Toyota mechanic told the driver that it was a relatively common problem. "That made me livid," the consumer wrote NHTSA. "I am furious that it appears Toyota was well aware of this problem ... I am asking for a full investigation, which, hopefully, will lead to a recall."

CALLS FOR REFORM

Service bulletins are reviewed by NHTSA each month and a one-line summary is posted on the agency's website. Consumers can order full copies for a fee. It can take weeks to process them.

Critics contend that many bulletins are never fully scrutinized.

"We support efforts to make service bulletins available to the public," said Clarence Ditlow, director of the Center for Auto Safety and one of the other outside experts called to testify in the recent Toyota hearings. "Now we need to get our government to say that if manufacturers are going to play these kinds of games, we have to get tough."

Ami Gadhia, policy counsel for Consumers Union, the non-profit publisher of Consumer Reports, an influential guide whose endorsements helped build Toyota, said the group would also back a review of disclosure standards as part of an effort to reform the system.

"It definitely bears examination both by Congress and by NHTSA whether the recall process is working as it should," Gadhia said.

None of the major automakers are in favor of an overhaul of service bulletin system, saying the issue is best left to the Department of Transportation.

But there are signs that the scrutiny Toyota is facing has changed the way the rest of the industry is approaching the question of recalls.

GM, wary of getting caught up in the safety debate, scrapped plans this year to roll out its plug-in hybrid Chevy Volt ahead of schedule. Delivering the Volt to consumers before its official launch this fall would have required GM to recall the early models for software upgrades for its battery system, retiring Vice Chairman Bob Lutz said.

Lutz said he had initially argued that GM should "do it quietly and just go in there and fix them" -- through the equivalent of a service bulletin. But then he was reminded of the safety debate after Toyota and agreed GM could not take the risk of being accused of making quiet fixes to a highly touted vehicle.

"Some people are in very serious trouble for doing just that," Lutz told Reuters.

(Additional reporting by David Bailey in Detroit, John Crawley in Washington and Steve Gorman in Los Angeles; editing by Jim Impoco and Claudia Parsons)

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