The Firestone Tire & Rubber Co. disclosed yesterday that the Securities and Exchange Commission is investigating whether the company made adequate disclosures in 1976 and 1977 about the problems it was having with its steel-belted radial tires.
In its annual meeting proxy statement, the company responded to a stockholder's question by revealing that the SEC is looking at the adequacy of statements the company made in its 1976 and 1977 annual reports about possible liability claims the company could face.
In its 1977 annual report, the company acknowledged that "there are various contingent liabilities arising out of the conduct of the business," including various administrative proceedings, legal actions relating to warranties, "product investigation and possible recalls."
But the report added that "in the opinion of management, including the company's general counsel, it (the potential liability) will not materially affect the company's consolidated financial position."
In internal Firestone documents published in recent weeks, it was clear that Firestone officials knew as early as 1972 that the company had severe consumer problems with its top-of-the line 500 steel-belted radial tire. Company documents showed that the rate of returns from consumers of the 500 far exceeded that of other Firestone tires and the industry in general.
Late last year, after prolonged investigations by both the National Highway Traffic Safety Administration and a congressional watchdog subcommittee, Firestone reluctantly agreed to recall an estimated 13 million Firestone 500s still on the road.
The NHTSA had determined months earlier that the tire had an unspecified "safety-related defect" that led to dozens of injuries and deaths due to tire failure. In addition, the congressional subcommittee determined that one out of every six 500s made by Firestone had been returned by consumers.
NHTSA has also said that it plans to fine Firestone up to $800,000 for contnuing to sell tires that had failed to meet federal safety standards.