Government fines? Toyota shouldn't worry

By Peter Valdes-Dapena, CNNMoney.com


NEW YORK (CNNMoney.com) -- If you think Uncle Sam will whack Toyota with massive civil penalties for not acting promptly to fix issues with its cars, think again.

Transportation secretary Ray LaHood has taken a sharp tone against Toyota in his public comments, including hints that he's considering fines.

Toyota's troubles
Since 2006, various safety issues have led to probes by U.S. agencies, resulted in the recall of over 10 million vehicles and landed the Japanese carmaker in trouble.

But despite "get tough on safety" laws enacted a decade ago, anything the government might do to Toyota will seem like a gentle smack on the wrist compared to the full-bore bashing the automaker is getting from others.

Personal injury attorneys are lining up to take a financial machete to the company while its precious brand image is getting battered after three nearly consecutive major safety recalls.

With the enactment of the TREAD act -- Transportation Recall Enhancement, Accountability and Documentation -- in 2000 automakers face stiffened civil, and even criminal, penalties for failing to promptly report safety defects to federal regulators in a timely way.

The TREAD act was passed in response to dozens of deadly Ford Explorer rollover crashes caused by faulty Firestone tires. No fines were ever levied in that case.

Under the law, an automaker can be fined as much $16.4 million for failing to promptly notify the National Highway Traffic Safety Administration of safety defects. The automaker has five business days to report a safety issue from the time that it finds what it believes to be a safety-related problem.

The biggest fine that's ever been levied was just $1 million taken from General Motors in 2004 for failing to deal promptly with a windshield wiper issue, an amount that was negotiated down from the $3 million NHTSA originally asked for.

There are some sizable loopholes for car companies to jump through, though. For starters, the five days begins the day the automaker comes to believe it has a safety issue. If a carmaker says it never believed the problem to be safety related, then it was never obligated to report it, no matter what it was, said an industry consultant who asked not be named because he deals with safety regulators.

For instance, Toyota has said it does not believe the Prius's brake problems compromise the car's safety. That belief should be enough to absolve Toyota of any wrongdoing in failing to promptly alert NHTSA, said the consultant.

A Toyota spokesman said the automaker has, and will, cooperate with nhtsa in any investigations.

Theoretically, the agency could take Toyota to court, said Ed Higgins, a Michigan product liability attorney, and subpoena documents that might show whether Toyota really considered this problem a safety defect, which would have triggered that five day rule.

But don't hold your breath on anything like that, he said.

"They've got bigger things to worry about," he said.

The fact is, Toyota recalled the cars and is fixing the problem, said Higgins. That's all NHTSA really cares about. It's not interested in protracted legal battles that will result in relatively nominal fines.

On the other hand, NHTSA is under some political pressure to look tough, said Warren Platt, a Phoenix product liability attorney who worked on Ford Explorer rollover cases.

With congressional hearings on Toyota coming up in a couple of weeks, if members of Congress start grumbling that NHTSA's been too soft, that may fan the fire for action.

"If the watchdog doesn't bark once in a while, what are they doing?" agreed the industry consultant.

Even so, with fines in the mere millions, the worst NHTSA could do won't seem like much, Platt admitted, compared to the other damage these recalls will do.

"The market is already meting it out," he said. To top of page

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