Hit with a record fine, Toyota considers whether to pay or contest penalty over recalls

Toyota faces legal dilemma as well as record fine

WASHINGTON — Already flooded with hundreds of private lawsuits, Toyota now faces a dilemma stemming from safety problems on several popular models: whether to accept a record $16.4 million fine that could be cast as an admission of wrongdoing, or fight the government at the cost of more bad publicity.

The Japanese automaker was weighing its options after the Transportation Department charged Monday that Toyota had hidden a “dangerous defect” and had failed to quickly alert regulators to the safety problems in such models as the best-selling Camry and Corolla. The company has an April 19 deadline to accept or contest the penalty.

The proposed fine is the most the government could levy, but further penalties are possible under continuing federal investigations.

Toyota Motor Corp. said Tuesday it would continue to offer most of its heavy sales incentives in April after the discounts helped drive up sales more than 40 percent last month. The incentives include cheap leases, zero-percent financing and a two-year free maintenance program.

Toyota has recalled more than 6 million vehicles in the U.S., and more than 8 million worldwide, because of acceleration problems in multiple models and braking issues in the Prius hybrid.

In announcing the proposed fine, Transportation Secretary Ray LaHood said documents obtained from the automaker show that Toyota knew of the problem with the sticking gas pedals in late September but did not issue a recall until late January. The sticking pedals involved 2.3 million vehicles.

“We now have proof that Toyota failed to live up to its legal obligations,” LaHood said in a statement. “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.”

For those reasons, LaHood said, the government is seeking a fine of $16.375 million, the maximum penalty possible. That dwarfs the previous record: In 2004, General Motors paid a $1 million fine for responding too slowly on a recall of nearly 600,000 vehicles over windshield wiper failure.

Toyota has been named in 138 potential class-action lawsuits over falling vehicle values and nearly 100 personal injury and wrongful death cases in federal courts nationwide.

“It may be easier to pay it than to let this keep dragging on and drawing more attention to themselves,” said Jessica Caldwell, a senior analyst with auto research site Edmunds.com.

The company said in a statement Monday that it had not yet received written notice from the National Highway Transportation Safety Administration regarding the recall issue.

“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 statement said.

The company noted that it has appointed a new chief quality officer for North America and has given its North American office a greater role in making safety-related decisions.

Under federal law, automakers must notify NHTSA within five days of determining that a safety defect exists and promptly conduct a recall.

The Transportation Department said the fine it is seeking is specifically tied to the sticking pedal defect and Toyota could face additional penalties if warranted by investigations.

The government has linked 52 deaths to crashes allegedly caused by accelerator problems in Toyotas. The recalls have led to congressional hearings, a criminal investigation by federal prosecutors, dozens of lawsuits and an intense review by the Transportation Department.

Toyota has attributed the problem to sticking gas pedals and accelerators that can become jammed in floor mats. Dealers have fixed 1.7 million vehicles under recall so far. The sticky accelerator pedal recall involves the 2007-10 Camry, 2009-10 Corolla, 2009-10 Matrix, 2005-10 Avalon, 2010 Highlander and 2007-10 Tundra.

Consumer groups have suggested electronics could be the culprit, and dozens of Toyota owners who had their cars fixed in the recall have complained of more problems with their vehicles surging forward unexpectedly. Toyota says it has found no evidence of an electrical problem.

Reviews of some recent high-profile crashes in San Diego and suburban New York have failed to find either mechanical or electronic problems. In the New York case, a police investigation found that the driver, not the car, was to blame.

Following the recalls, the Transportation Department demanded in February that Toyota turn over documents detailing when and how it learned of the problems with sticking accelerators and with floor mats trapping gas pedals.

NHTSA said documents provided by Toyota showed the automaker had known about the sticky pedal defect since at least Sept. 29, 2009, when it issued repair procedures to distributors in 31 European countries and Canada to address complaints of sticking pedals, sudden increases in engine RPM and sudden vehicle acceleration.

The government said the documents also show that Toyota knew that owners in the United States had experienced the same problems. Toyota has provided NHTSA with more than 70,000 pages of documents during the investigation.