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Toyota Faces $16.4 Million U.S. Fine

Source: WSJ

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Posted on 06 Apr 2010

Transportation Secretary Ray LaHood said the U.S. plans to seek a $16.4 million fine against Toyota Motor Corp., saying the auto maker "knowingly hid" safety problems from regulators.

The proposed fine, the maximum allowed under law against a car maker and far exceeding the previous record of $1 million, is the first linked to Toyota's recall of more than eight million cars globally for gas-pedal and sudden-acceleration problems.

"We now have proof that Toyota failed to live up to its legal obligations," Mr. LaHood said Monday. "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."

Investigators determined that Toyota failed to notify regulators of a "sticky pedal" defect in certain models for four months, the agency said. U.S. law requires notification within five business days. The defect, involving gas pedals that were slow to return to idle after the driver's foot was lifted, led to the recall of 2.3 million U.S. vehicles in January. The defect wasn't blamed for any serious accidents.

Regulators are still investigating Toyota's actions related to other recalls and the Transportation Department said it could seek additional fines. The Japanese company also is the subject of an investigation by the Securities & Exchange Commission and a federal grand jury.

Toyota has two weeks to contest the fine or agree to pay it. The company said in a statement that it hadn't received a letter from the Transportation Department explaining the fine.

"We have already 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 company said. "These include the appointment of a new Chief Quality Officer for North America and a greater role for the region in making safety-related decisions."

While the fine itself is largely symbolic given Toyota's size and cash reserves, analysts warned it could damage the car maker's ability to defend itself against civil suits it faces. "The real painful damaging sums are going to come when you see the settlements coming from the actual trials," said Aaron Bragman, an auto analyst at IHS Global Insight.

Plaintiffs' attorneys cheered news of the fine, saying it bolstered suits seeking class-action status against Toyota. The suits allege it misled regulators and consumers by hiding information about safety problems. "This looks good for the consumer and for our claims," said Tim Howard, a Northeastern University law professor who heads a group of attorneys who filed claims in three dozen states.

The action also came as Toyota appeared to be putting the safety crisis behind it. Toyota's sales rebounded strongly in March thanks in part to rich incentives it offered to buyers.

The U.S. investigation, conducted by the Transportation Department's National Highway Traffic Safety Administration, concluded that Toyota knew of the "sticky pedal" defect as early as Sept. 29, 2009.

That day, the company sent instructions for repair procedures to distributors in 31 European countries and Canada to respond to complaints about the sticky pedals and sudden acceleration, the agency said. Documents show Toyota was aware of similar issues with its vehicles in the U.S., the agency said, but didn't agree to a U.S. recall until January.

Mr. LaHood and his department have taken criticism from lawmakers and safety advocates for being too quick to accept Toyota's explanations for sudden-acceleration incidents.

An internal Toyota presentation disclosed at congressional hearings last month boasted the company saved $100 million by limiting a 2007 recall involving floor mats suspected of tangling with the gas pedals in Toyota and Lexus vehicles.

Joan Claybrook, a former NHTSA administrator who told Congress that higher civil and criminal penalties are needed for car makers, praised the fine but said it wasn't big enough. "For these kinds of life and death issues, the company has to be pinched," she said. "Here there's not even a pinch."


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