The Firestone Tire & Rubber Co., hit last weekend with further news reports that it knew of problems with its 500 steel-belted radials three years before it did anything about them, now faces the possibility of being sued by the State of California.

Firestone spokesman Bernard Frazier confirmed that company executives are negotiating with California Department of Consumer Affairs officials over the possibility that Firestone might launch an intensive, multi-media advertising campaign informing Californians that they can trade in their 500 steel-belted radial tires. The consumers would get the newer 721 model with a significant discount on the 721 prices based on the amount of wear on the traded-in 500's

Jack Newman, an attorney for the California Department of Consumer Affairs, said his office first considered suing Firestone when it read a Firestone memorandum to its dealers in California ordering them to follow a "customer satisfaction policy."

That policy calls on the dealers to give free tire inspections to owners of the 500 steel-belted radial, a tire the National Highway Traffic Safety Administration claims has a design defect causing an abnormally high number of blowouts and related problems like tread separation. NHTSA has called upon Firestone to recall the tires, but the company defends them and is fighting any proposed recall.

The dealers also are urged in the company memo, to encourage customers to trade in the 500's they have for the newer 721 model steel-belted radial, which have not had the problems associated with the 500.

But having a free inspection and rebate policy is not enough, Newman says. He wants Firestone to publicise that fact.

"The California Department of Consumer Affairs wants Firestone to publicise this policy extensively and dramatically across California," Newman said.

Newman said that two Firestone officials went to Sacramento last week to negotiate his request. He asked them to undertake a "well-financed and skillfully managed advertising campaign in the mass communications media across the state to bring their new policy forcefully to the attention of the California driver."

"We even indicated that we were willing to hold a joint press conference with them," Newman added.

He characterized the discussions as "frank and productive," but warned that "if they don't produce the results we are hoping for, then we will try to achieve this result through other means."

The "other means" Newman referred to would involve a suit by the state seeking to force Firestone to advertise the liberal returns policy to the general public.

Meanwhile, over the past weekend, news reports in the Akron Beacon Journal and the Wall Street Journal said that Firestone was aware of serious problems with some of its steel-belted radial tire three years ago, but withheld that information from the government.

Firestone spokesman Michael Fay called the Beacon-Journal story "exaggerated, misleading and incomplete." He said the tests referred to "are among thousands of tests conducted each year as a normal part of research and development, and general conclusions about the performance of any tire cannot be drawn from one test or a limited number of tests."