Toyota Recalls Highlight Murky Standards

WASHINGTON (TheStreet) -- Toyota's (TM) recent recalls raise several safety questions, not least of which is "What does it take to initiate a recall?" The answer is still subjective.

Before the Toyota recalls, the National Highway Traffic Safety Administration's threshold for a safety recall consisted of two criteria: When a motor vehicle or its equipment (including tires) does not comply with federal standards and when there is a safety-related defect in the vehicle or equipment. When two House committees hold hearings on the Toyota recalls next week, NHTSA critics say the groups should look into the administration's staffing and funding for its Office of Defects Investigation, which they say isn't enough to coax more than voluntary recalls out of carmakers, such as Toyota, Honda ( HMC) and General Motors.

The NHTSA, prompted by consumer reports reviewed by its defects investigation office's roughly 20 employees, opened 100 defect and compliance investigations last year and has 40 still pending. During the last three years, the NHTSA says its investigations yielded 524 recalls of 23.5 million vehicles. Clarence Ditlow, executive director of the nonprofit Center for Auto Safety, says a lack of systematic policy on opening defect investigations and low funding are hindering the administration's ability to impose recalls. The NHTSA receives what amounts to two cents for each of the more than 135 million cars the Bureau of Transportation Statistics says are currently on road.

"Some recalls have been started by as few as one complaint, but some recalls never get started despite many complaints," Ditlow says. The NHTSA didn't respond to requests for comment.

The NHTSA's problems date back to 1981, when the Office of Defects Investigation's budget was halved by the Reagan administration, Ditlow says. The budget received a bump after problems with Firestone tires on Ford ( F) Explorers led to a mandatory recall in 2001, but didn't return to pre-1981 levels. While the Transportation Recall Enhancement, Accountability and Documentation Act of 2000 increased fines from $925,000 to $15 million for companies who don't report defects to the NHTSA when they are identified, it didn't ensure investigations and didn't strike much fear into companies like Toyota: Whose 8.5 million recalls, if unreported, would cost the company only $1.76 per car opposed to an estimated $100 per car for a recall.

"What happens in instances like Ford-Firestone or Toyota's is that the manufacturer's calculus dictates that they're going to be able to avoid a recall or, if they have to do a recall, they'll do the most limited recall they can in terms of recall remedy and number of vehicles," Ditlow says. "But if it catches the public eye, goes on the evening news every night, you lose consumer confidence and sales go down, the assumptions that you made in doing your initial calculus goes out the door."

Institutional ambiguity doesn't help matters. NHTSA's own literature says "there is no established number" of reports that would prompt an investigation. However, the National Traffic and Motor Vehicle Safety Act of 1966, which created the NHTSA, didn't even require a crash for a recall. The act says that cars should be recalled if defects create "an unreasonable risk of a crash," while NHTSA head Joan Claybrook made clear during her reign from 1977 through 1981 that a recall should stem from a non-de minimum (read "significant") number of complaints. Ditlow said he agreed with Ford spokespeople after the Firestone recall that a 0.25% rate of complaint would be enough to push for a recall. In Toyota's case, 21,250 petitions would have done the job.

The Department of Transportation is attempting to address the NHTSA's staffing numbers through its 2010 budget proposal, which would give the agency 66 more personnel. Until the NHTSA develops rigid guidelines for imposing recalls, public outcry may dictate the lessons manufacturers learn from Toyota's troubles.

"A lot of automakers have a history of trying to negotiate with NHTSA, working on not issuing a recall and trying to handle it quietly," says Jesse Toprak, an analyst with TrueCar.com. "Any problem from this point on is going to be scrutinized and, with the power of the Internet, you can't hide these things. People are going to talk about it."

-- Reported by Jason Notte in Boston.

Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, The Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.

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