UPDATE 3-U.S. seeks to fine Toyota $16.4 million

Mon Apr 5, 2010 8:16pm EDT

* Gov't says Toyota knew of defect for at least 4 months

* Fine is largest ever in U.S. against an automaker

* More fines possible over Toyota's handling of recalls (Adds analyst comment, bylines, previous WASHINGTON)

By John Crawley and David Bailey

WASHINGTON/DETROIT, April 5 (Reuters) - Toyota Motor Corp (7203.T) (TM.N) faces a proposed $16.4 million fine from U.S. regulators who said the automaker knowingly delayed a massive recall for defective accelerator pedals.

The civil penalty, the largest that the U.S. Department of Transportation has ever sought, is the first official finding that the world's largest automaker violated U.S. safety regulations. Toyota can appeal the penalty.

"We now have proof that Toyota failed to live up to its legal obligations," U.S. Transportation Secretary Ray 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."

The National Highway Traffic Safety Administration (NHTSA) continues to investigate Toyota recalls, including one in October 2009 for floor mats that can jam the gas pedal and cause uncontrolled acceleration, and additional fines are possible, the agency said.

Toyota did not directly address the issue of the fine, but did say it had taken steps to improve communications about safety issues with both regulators and customers.

Since the recalls, Toyota's reputation for quality has suffered and it is the target of more than 135 U.S. lawsuits.

Jesse Toprak, an industry analyst with TrueCar.com, expected Toyota to appeal the fine.

"I think they will do whatever it takes because of what it might lead to," Toprak said about a likely Toyota challenge. "That (the fine) may very well be the basis for a class action lawsuit."

Toyota has two weeks to decide its response.

The "sticky pedal" case was the only one in a string of voluntary recalls where a formal defect finding was established.

Documents obtained from Toyota showed the automaker had issued repair notices in Canada and Europe to address complaints about "sticky pedals," sudden acceleration and sudden engine revving in late September, but did not begin a U.S. recall until late January, regulators said.

Manufacturers are legally obligated to notify U.S. safety regulators within five business days if they determine that a safety defect exists. The documents showed Toyota was aware U.S. consumers were experiencing the same problems, the Transportation Department said.

As part of the pedal recall, Toyota has offered to add a metal shim or replace them completely.

Previously, the largest fine was $1 million against General Motors Co (GM.N) for failing to promptly recall windshield wipers in 2002-2003 model vehicles.

Fines for violating auto regulations were increased earlier in this decade after massive recalls involving Firestone tires. (Additional reporting by Bernie Woodall, Soyoung Kim in Detroit; Editing by Toni Reinhold, Bernard Orr, Leslie Gevirtz)

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