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U.S. seeks to hit Toyota with top fine for delays in disclosing problems

Transportation Department looks to levy the maximum civil fine of $16.4 million against Toyota for delays in notifying authorities about defects in its gas pedals.

April 06, 2010|By Ralph Vartabedian and Ken Bensinger

Signaling that the federal government is getting tougher on auto safety enforcement, the Transportation Department said it would seek the maximum civil fine of $16.4 million against Toyota Motor Corp. for delays in notifying authorities about defects in its gas pedals.

Additional fines for other legal lapses in Toyota's handling of recent safety recalls are also under consideration, the department said Monday, potentially subjecting the automaker to millions of dollars in additional penalties.

It could also expose Toyota to greater legal liability in more than 100 civil suits across the country, legal experts said.

Toyota failed to notify the National Highway Traffic Safety Administration for at least four months that accelerator pedals in eight of its models could become stuck, the agency said -- a problem that could potentially cause vehicles to race out of control. Under federal law, automakers have five business days to notify the government about such safety defects.

"We now have proof that Toyota failed to live up to its legal obligations," said Transportation Secretary Ray LaHood. "Worse yet, they knowingly hid a dangerous defect for months from U.S. officials and did not take action to protect millions of drivers and their families."

The sticky-pedal problem erupted in January, when Toyota was already dealing with the largest recall in its history for incorrectly installed floor mats linked to sudden acceleration. The pedal problem led the company to an unprecedented factory shutdown and temporary suspension of sales of the affected models.

In total, Toyota has issued nearly 10 million recall notices worldwide in recent months for problems related to sudden acceleration.

Transportation officials said Toyota knew about the sticky-pedal defect since at least Sept. 29, when it issued repair procedures to distributors in Europe and Canada.

The company has acknowledged in legal filings with NHTSA that it first noticed the problem in its Tundra pickup truck in early 2007.

But the company waited until Jan. 21 of this year to notify U.S. authorities about the problem and begin a recall. Within weeks, NHTSA opened three investigations into the scope and timeliness of Toyota's safety recalls, one of which involved the sticky pedal.

Experts said the penalty announced Monday is likely to send shock waves through the auto industry.

"The fine is a watershed in the sense that NHTSA has never before sought the maximum penalty against an automaker," said Clarence Ditlow, executive director of the Center for Auto Safety. "The agency is telling the auto companies that we are going to throw the book at you for violations."

Carl Tobias, a professor of law at the University of Richmond who specializes in torts and product liability, said the announcement could complicate Toyota's legal woes.

"This is sending a message not just to Toyota but to the entire industry," Tobias said. "The government believes that Toyota wasn't forthright. Unless that's disproved by Toyota, it's going to have a big impact on litigation against the company."

Toyota said in a statement that it had not received formal notification from NHTSA about the fine, but that it has taken "a number of important steps to improve our communications with regulators and customers on safety-related matters as part of our strengthened overall commitment to quality assurance." The steps include appointing a new chief quality officer.

But the company's voluntary practice to disclose defects came under sharp question this year. According to a document released by Congress in February, the company boasted internally last summer that it had saved $100 million by limiting a recall of floor mats in 2007.

In the same document, Toyota also noted that it had avoided paying civil fines and at least $20 million in buybacks on a recall related to tire labeling.

The fine for sticky pedals is only one of the legal issues looming over Toyota, which is also being investigated by a federal grand jury in New York, three congressional committees and the Securities and Exchange Commission.

NHTSA is still conducting two other investigations that could lead to additional penalties. It is examining whether Toyota promptly recalled its vehicles to deal with sudden acceleration caused by out-of-place floor mats and whether past recalls related to sudden acceleration were too narrow in scope.

So far, the largest fine ever levied against an automaker was $1 million against General Motors in July 2004. Since then, NHTSA has fined companies that include a motorcycle helmet maker and a car customization business, but not an automaker.

Under federal law, Toyota has five days to agree to the fine or negotiate a different agreement with NHTSA. If it fails to reach an agreement, it can appeal the fine in federal court.

The fines are a "drop in the bucket for them," said Don Slavik, an attorney representing a number of plaintiffs in suits against Toyota.

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