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Mark Rechtin, Automotive News / January 8, 2007

LOS ANGELES — Toyota Motor Sales U.S.A. Inc. has quietly settled a
class-action lawsuit that covers about 3.5 million Toyota and Lexus vehicles
that may have been damaged by engine oil sludge. Details of the settlement,
which allows for third-party mediation of sludge claims rejected by Toyota,
have been mailed to 7.5 million current and previous owners.

Critics contend Toyota has told customers and dealers too little about
sludge issues. They say some customers took vehicles with dead engines to
dealers who had little or no knowledge of the problem and often assumed it
was the owners’ fault. Unhappy customers had no remedy other than hiring a
lawyer to go after Toyota.
Under the agreement, owners whose claims have been denied by Toyota may
submit them to a third-party mediator at no cost for binding arbitration.
“This settlement breathes life into claims that have been dead for years,”
said Gary Gambel, a lawyer for plaintiffs who sued Toyota. “This is not a
settlement that gives a few dollars to everyone. The relief is exactly tied
to the problems and damages that someone might have.” The lawsuit, filed in
a Louisiana district court, is expected to be approved by the court in early
February.Toyotas at risk

About 3.3 million Toyota vehicles are susceptible to oil sludge, which can
cause thousands of dollars in damage and require replacement of the engine.
Here are the vehicles included in the settlement.

Camry 4 cyl. 1997-2001
Camry 6 cyl. 1997-2002
Camry Solara 4 cyl. 1999-2001
Camry Solara 6 cyl. 1999-2002
Sienna 6 cyl. 1998-2002
Avalon 6 cyl. 1997-2002
Celica 4 cyl. 1997-1999
Highlander 6 cyl. 2001-2002
Lexus ES 300 1997-2002
Lexus RX 300 1999-2002

Chink in the armor?
Sludge is gelled oil that fails to lubricate engine parts. It can lead to
damage, often requiring a new engine at a cost that can exceed $10,000.
Complaints about sludged engines have plagued several carmakers, but
Toyota’s troubles have been especially controversial in light of its
reputation for vehicle quality.

The issue highlights a possible chink in the company’s armor. Executives
fear Toyota is growing too fast for its engineering resources. That could
lead to quality snags and a tarnished reputation.

When a customer takes a sludge-caked engine to a dealership, there is
usually a “clean-out” procedure. The head is pulled and a service technician
tries try to steam out the sludge. If that doesn’t work, the engine must be

Sludge can result from poor engine design; overly tight tolerances between
moving parts; improper cooling; and poor maintenance by consumers. Toyota
insists the problem arises mainly when owners fail to change their oil
frequently enough.

The agreement does not find Toyota at fault.
“The settlement doesn’t mean that Toyota or Lexus vehicles are predisposed
to develop oil gel,” according to the notice. “The court did not decide
which side was right.”

After Toyota had received 3,400 sludge complaints by 2002 it extended its
vehicle warranty to eight years and unlimited miles. The program was offered
to owners of 1997-2002 Toyota and Lexus vehicles equipped with 3.0-liter V-6
or 2.2-liter four-cylinder engines. The company declined to give an updated
number of complaints.

The terms
Under terms of the settlement:
* Owners of damaged vehicles have eight years plus 120 days from the
original purchase date to file a complaint.
* If Toyota denies the claim, owners can appeal to a judge-appointed
third-party administrator: J. Robert Ates, a New Orleans lawyer.
* Customers who have already made repairs may be able to recover the costs.
* Only those who elect not to participate in the settlement can sue Toyota
individually. The deadline for that choice was Dec. 31, 2006.
* The settlement is transferable to future vehicle owners.
* The car only needs to show evidence of oil sludge. It is not necessary for
the owner to have made repairs during the claim period.
* Damages that can be recovered include loss in value of the vehicle and
incidental costs, such as rental cars. Past lawyers’ fees, mental anguish
and bodily injuries are not covered.
A Toyota spokesman said the agreement is not a defeat for the automaker.

“The settlement validates the customer support program we implemented four
years ago,” Xavier Dominicis said. “The terms of the program remain
unchanged. There always was a way for customers to appeal our decision.”

Plaintiff lawyers disagree. They say Toyota failed to communicate the extent
of the problem to its dealers and customers. Toyota’s appeal process also
meant hiring a lawyer, which many consumers could not afford. It costs
nothing to file an appeal with Ates. “The consumer only needs to show
reasonable maintenance in terms of oil changes,” Gambel said. “You don’t
need to prove where the sludge came from, or explain your driving habits. If
you have oil sludge, Toyota pays” the consumer.

Consumers can get more information by calling 888-279-4405 or at