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Potential Penalties against Toyota Could Hit $49.2 Million

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Washington, DCThe federal government is angry with Toyota for waiting so long to inform consumers about the various Avalon and Camry recalls enacted over sticking gas pedals and floor mats. That wait is going to cost Toyota a potential $16.375 million in fines—the largest penalty allowed under the Tread Act.

According to an account published earlier this week in the New York Times, the penalty signals the Transportation Department's utter dismay at the manufacturer's delayed response to the problems and its concealment of safety information.

Transportation Secretary Ray LaHood had long intended to hold Toyota's feet to the fire, to paraphrase earlier remarks. "We now have proof that Toyota failed to live up to its legal obligations," LaHood said. "Worse yet, they knowingly hid a dangerous defect for months from US officials and did not take action to protect millions of drivers and their families."

Documents obtained by the Transportation Department revealed that Toyota was aware of the pedal defect as early as September 29. It was on that date that the manufacturer issued bulletins to its dealers in Canada and 31 European countries, instructing them on how to deal with sticky accelerator pedals and sudden acceleration.

Included in the documentation was evidence that Toyota had also received complaints from US consumers at about the same time. However, while Toyota issued a recall for floor mats last fall, no recall for sticking accelerator pedals was forthcoming in the US until late January—almost four months after the company became aware of the problem.

Regulations require that automotive manufactures alert the National Highway Transportation Safety Administration (NHTSA) about defects within five business days.

There could be more financial penalties forthcoming for Toyota. The NHTSA is in the process of investigating two other Toyota recalls that could result in similar fines. If the fines are levied, and if Toyota does not contest them, the manufacturer could face penalties totaling about $49.2 million. That's over and above any costs the automaker incurs from the recalls, as well as marketing costs related to winning back customer support and loyalty.

The Transportation Department is hitting Toyota with the maximum for an automotive manufacturer under the law, yet critics say the fines pale in comparison to penalties levied against manufacturers in other sectors, such as the pharmaceutical industry. Last September the Justice Department reached a $2.3 billion settlement with Pfizer over fraudulent marketing issues.

"It's good news that NHTSA is being an aggressive regulator," said Sid Shapiro, a professor of law with Wake Forest University and vice president of the Center for Progressive Reform. "But you have to have doubts whether a $16 million fine is going to have a deterrent effect on automobile companies that are worth billions of dollars."

The potential in fines and penalties against Toyota is less than half that which the automaker reportedly saved after negotiating with the NHTSA for a smaller recall campaign in 2007. There, Toyota claims to have saved $100 million.

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