Toyota took cost-cutting approach on lurching Lexus models, records show

Five months before the new 2002 Lexus ES hit showroom floors, the company’s U.S. engineers sent a test report to Toyota City in Japan: The luxury sedan shifted gears so roughly that it was “not acceptable for production.”

The warning was sent to Toyota Executive Vice President Katsuaki Watanabe on May 16, 2001. Days later, another Japanese executive sent an e-mail to top managers saying that despite misgivings among U.S. officials, the 2002 Lexus was “marginally acceptable for production.” The new ES went on sale across the nation on Oct. 1, 2001.

In years to come, thousands of Lexus buyers would discover firsthand that the vehicle’s transmission problems, which caused it to hesitate when motorists hit the gas, or lurch forward unintentionally, were far from fixed.

The 2002-2006 ES models would become the target of lawsuits, federal safety investigations and hundreds of consumer complaints, including claims of 49 injuries.

Internal Toyota records reviewed by The Times provide an inside look at how the world’s largest automaker struggled for years to identify the causes of nagging performance issues in one of its top-selling luxury vehicles. They also show that the automaker sought to cut costs by limiting the scope of repairs.

“The objective will be to limit the number of vehicles to be serviced to those owners who complain, and to limit the per-vehicle cost,” a Toyota staff attorney wrote in an Aug. 15, 2005, memo explaining the automaker’s legal defense strategy.

Toyota was fined a record $16.4 million last month for delays in notifying federal safety officials about defects that could lead to sudden acceleration. Though the 2002-2006 ES models were not included in Toyota’s recall of nearly 10 million vehicles worldwide for unintended acceleration, the car’s history has nonetheless caught the attention of congressional investigators.

A House committee has subpoenaed thousands of internal documents from Toyota, including nearly 250 dealing explicitly with that generation of the ES, which were collected or produced by the automaker to defend itself against a 2005 lawsuit.

In statements to The Times, Toyota Motor Corp. officials said they followed industry practice for notifying customers about repairs.

“Given the concerns raised by some customers about this drivability issue, we did not meet the very high customer satisfaction standards we set for ourselves,” Toyota said. “However, we fully stand behind the engineering and production quality of the vehicle, as well as our after-sale customer service and technical support.”

The documents show that Toyota repeatedly tried to solve the lurching problem by modifying the car’s computer software. But Toyota told The Times that the Lexus ES issues concerned “drivability” and were not related to the sudden-acceleration problems experienced in other vehicles.

Hattie Lesure, however, said the Lexus ES 300 she bought for $35,000 in August 2002 had an alarming tendency to jump forward without warning. “My fear was that it could surge into another car,” the Moreno Valley retiree said.

After her Lexus dealer and Toyota’s U.S. sales unit disputed Lesure’s claim, she filed a lawsuit against the automaker, which was settled for about $3,000.

When Lesure bought the ES, Toyota was quietly rolling out a new version of the software used to control the car’s drivetrain in an attempt to remedy the car’s performance woes. But the automaker decided to fix only a fraction of the vehicles, the documents show.

The repair “should only be utilized for critical customer complaints,” wrote Gary Heine, quality-assurance powertrain manager for Toyota’s U.S. sales division, in an e-mail to customer service managers on Aug. 27, 2002, according to a chronology Toyota lawyers prepared for litigation in late 2005.

Other customers — presumably those who did not complain loudly enough — were not included in the software upgrade until late 2003, when Toyota instructed dealers on how to reprogram the onboard computer and advised more than 100,000 ES owners to bring their cars in for a “product enhancement.”

But many customers complained that the fix didn’t work, internal memos prepared for Toyota executives in Japan show, leading some officials to question the wisdom of sending notices in the first place.

In an Aug. 3, 2005, e-mail to a superior, then-Toyota staff attorney Dimitrios Biller described a meeting he had with the then-head of Lexus in the U.S., Bob Carter, on whether to notify ES owners about a new software update. Carter now heads the Toyota brand here.

“Bob is opposed to the idea of sending such a letter out to all owners of all 2002 to 2005 ES 300 and ES 330 vehicles because a substantial majority of these people are satisfied with their vehicles,” Biller wrote. “Once they become sensitized to the hesitation and/or lurching, they will become ‘dissatisfied’ Lexus owners.”

Two weeks later, Biller wrote a memo indicating that Toyota’s “objective will be to limit the number of vehicles to be serviced to those owners who complain, and to limit the per-vehicle cost.” (Biller has since left the automaker and is involved in several lawsuits with the company. Toyota has called Biller “a disgruntled former employee.”)

Toyota sent the letter to the 3,000 customers “who have actually complained about the performance of the transmission” in their cars, the documents show.

In its statement, Toyota said that issuing a technical service bulletin “versus direct notification to customers” is “commonplace for addressing issues such as this” and is a practice used by other manufacturers. Toyota did not respond to a request to interview officials who wrote or received documents cited in this article.

Vexing problems

The ES had for many years been the top-selling model in the Lexus lineup, known for its smooth ride and graceful handling.

A month after the 2002 ES went on sale, car critics panned what one called “jerky gears.” In the coming months, Toyota officials noted growing numbers of complaints on Internet forums and the National Highway Traffic Safety Administration’s website and, according to the legal chronology, were able to replicate the surge problem in a test vehicle.

In August 2002, J.D. Power & Associates reported to Toyota that complaints about the ES’ transmission had quadrupled. That drove the vehicle’s ranking in that category to 18th place, the chronology said.

In its statement, however, Toyota noted that the Lexus ES had consistently received high marks overall from J.D. Power.

Also in 2002, two ES owners prepared a lawsuit alleging defects and seeking class-action status. Before it was filed, Toyota settled, according to a letter sent by Toyota to its outside counsel in June 2005.

One of the plaintiffs, Micky Palach of Monroe Township, N.J., recalls receiving a $900 check.

“The car had a serious transmission problem,” said Palach, who bought the Lexus as a Christmas present for his wife. He still owns the car, which he said continues to surge unexpectedly.

Toyota engineers had been trying to solve the performance problems on the ES since at least 1999, documents show. But by 2004, some at the company thought that no amount of software tinkering would remedy the problem.

In a July 21, 2004, internal report, Toyota’s vehicle engineering division suggested that the performance woes were the result of the car using only three motor mounts to secure the engine, one fewer than in previous ES models.

In an interview with company lawyers in November 2005, two Toyota engineers indicated that “the performance characteristics of the vehicles are NOT related to the software, but to hardware issues,” according to an e-mail sent by Biller.

But company officials ruled out solving the problem “due to the complications as well as costs associated with a change from three to four engine mounts,” according to a memo written by Toyota’s outside counsel regarding the same meeting.

The redesigned 2007 ES, released less than a year later, had four engine mounts.

Safety questions

Carol Mathews said she was parking her 2002 ES when it suddenly jumped forward, smashing into a tree. The repair bill came to $14,000.

“I always swore on a stack of Bibles that there was something wrong with that car,” said Mathews, former director of healthcare for the Montgomery County, Md., public school district.

After Toyota rejected her claims that the car was defective, Mathews filed a petition in 2004 with NHTSA. Acting on that complaint, NHTSA opened the first of three defect investigations into that generation of ES for unintended acceleration problems.

All three were dismissed, but a review of NHTSA’s database shows that 49 injuries have been blamed on acceleration problems in that version of the ES. A September 2008 complaint alleged that a speed control problem in a 2006 ES led to a pedestrian’s death.

In early 2005, Los Angeles attorney David Greenberg filed a class-action suit against Toyota in federal court, alleging that defects in the ES caused it to “hesitate,” “lurch” and, in certain circumstances, suffer “dangerous, unanticipated acceleration.”

In preparation for trial, Toyota approved a $1.6-million budget for its outside counsel, Quinn Emanuel Urquhart & Sullivan. The judge dismissed the case in May 2006, saying it did not belong in federal court.

State court remained an option. Toyota, which had collected the nearly 250 documents in preparation for its defense in the case, notified its auditor that a state lawsuit could pose a material liability that would force it to notify shareholders.

But Greenberg, an employment and personal injury lawyer, decided not to pursue the case.

“I felt like we had a good case. It was just a bit premature,” said Greenberg, who still owns the same Lexus. “If I had the case today, I can tell you we wouldn’t have given up so easily.”