Takata’s Airbag Recall a Result of Converging Forces

Takata’s Airbag Recall a Result of Converging Forces

By JONATHAN SOBLEMAY 20, 2015

Photo

Takata airbag cushions at a factory in Sibiu, Romania, in 2006.CreditMihai Barbu/Reuters


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TOKYO — Just two weeks ago, the Japanese auto supplier Takata suggested the worst was over, as it continued to resist acknowledging any defects with its airbags.

At a briefing on Takata’s latest business results on May 8, executives predicted that the company would return to profitability in 2015, despite the continuing legal and regulatory challenges over its exploding airbags that have been linked to six deaths and more than 100 injuries. Although they cited the risk of lawsuits and future recalls, they insisted those issues were too vague to quantify.


But in the face of rising pressure from regulators and business partners, Takata changed course on Tuesday. It admitted its airbags were faulty and agreed to double the number of vehicles recalled in the United States, to nearly 34 million, in the largest auto safety recall in history. Takata’s share price plunged by as much as 12 percent in trading in Japan on Wednesday as investors tried to digest the potential impact on Takata’s already weakened finances.Continue reading the main story
Danger in the Steering Wheel

Airbags made by the Takata Corporation have a potential defect when they deploy. Some have ruptured, sending metal fragments into the car. Six deaths and more than 100 injuries have been linked to the problem.



INFLATER/CANISTER


PROPELLANT


Cutaway view


INFLATER/CANISTER


STEERING WHEEL


AIRBAG


HOW IT WORKS:


Inside the canister, pellets of a propellant based on ammonium nitrate, a common compound used in fertilizer, are ignited and generate the nitrogen gas that inflates the airbag in a fraction of a second.


THE PROBLEM:


Takata has said manufacturing problems, together with exposure to moisture in cars in humid regions, can cause the propellant to degrade. This can make the propellant burn too strongly when the airbag is deployed, rupturing the inflater and sending metal fragments into the car’s interior and injuring the driver or passengers.


The biggest factor in Takata’s reversal: American safety regulators and lawmakers. Regulators in the United States have been tightening the screws, fining the company up to $14,000 a day for what they said was insufficient cooperation with an investigation. Some members of Congress have been calling for a criminal investigation of the company.

While regulators in Japan have been quieter, Takata’s business partners — many of which are based in its home country — have also been growing impatient with its response to the crisis, according to people knowledgeable about the company’s relationship with its customers and the banks that are crucial to financing its operations.

“The message was, essentially, we won’t lend you more money until you sort this out,” said one person with knowledge of discussions between Takata and its banks, who spoke on condition of anonymity. “There was pressure coming from all sides.”

The company’s admission and the new recall could expose Takata to a larger share of recall costs and potential liability in lawsuits that are piling up in the United States and Canada. Recalls and repairs could run into the billions. One group of Canadian plaintiffs alone is seeking 2.4 billion Canadian dollars, or about $2 billion.

“As long as it was carmakers issuing the recalls, and the cause wasn’t pinpointed, Takata could say it was up to them to pay,” said Takaki Nakanishi, an auto analyst and chief executive of Nakanishi Research Institute.
Continue reading the main storyVideo
Takata’s Malfunctioning Airbags
By Carrie Halperin on Publish DateNovember 6, 2014.

In its accounts for the last fiscal year, Takata recorded a one-time cost of 60 billion yen, or about $499 million, for expenses related to the recalls. Those costs could now balloon to ¥250 billion or more just based on the additional vehicles that need fixing, even before any renegotiation with automakers about how to split the expenses, said Koji Endo, an auto analyst at Advanced Research Japan.

That would overwhelm the ¥20 billion in net profit Takata said this month it expected to earn in the current fiscal year, which began in April. It is possible those costs would be paid over several years, given the time that is expected to be required to complete such a vast recall.


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Analysts said Takata had enough cash reserves and support from its customers and Japanese banks to stay in business, even if it absorbs more losses. But both groups are said to be urging Takata and its reclusive chief executive, Shigehisa Takada, to act more decisively to draw a line under the crisis.

In the past, the company has said that any problems with the airbags were a result of manufacturing errors, not design flaws. Its latest admission suggested there were more fundamental problems with the inflaters, though it said carmakers shared blame because “testing specifications prescribed by the vehicle manufacturers” failed to uncover faults.

Since the crisis escalated last year, the founding Takada family has tightened its grip on the company. In December, the airbag manufacturer removed its president and handed over those duties to its chairman, Mr. Takada, the grandson of the company’s founder. The company said the move would further unify its response to the mounting recalls and expedite decision-making.Continue reading the main story

Is Your Takata Airbag Under Recall?

Millions of vehicles have been recalled worldwide over faulty airbags made by Takata. Six deaths have been linked to ruptured Takata airbags, five of them in the United States.

People in the United States can find out if their vehicle has been recalled on the National Highway Traffic Safety Administration’s recall page. Outside the United States, vehicle owners should consult their national safety regulator.
Go to NHTSA Recall Page »


Mr. Takada has drawn criticism for remaining out of sight during the crisis. He issued a written statement on Tuesday pledging “to do everything we can to advance the safety of drivers.” But he has not addressed the issue in person since a Takata shareholder meeting last June, where he apologized to investors.

Automakers, meanwhile, have been increasingly proactive in investigating why some of Takata’s airbags can rupture violently when they deploy. Six deaths and more than 100 injuries have been linked to shrapnel-like debris sent flying by exploding Takata airbag inflaters.

Last week, Toyota recalled nearly five million more vehicles over the problem, part of an expanded recall of 11.5 million vehicles by three Japanese automakers. Nissan and Honda were the others.

Toyota said it made the decision based on the results of its own independent testing, which it said revealed that some of the steel inflaters in Takata airbags were not airtight.

That finding was echoed in the admission on Tuesday by Takata, which said it had discovered leaks in some of inflaters that could allow moisture to seep in over time. When that happens, the chemical propellant inside breaks down, making it more susceptible to exploding violently.

“It was getting clearer that not just Takata, but carmakers like Toyota and Honda, were doing tests and getting closer to discovering the real cause,” Mr. Endo said. “At a certain point, it’s no longer sensible for Takata to keep quiet.”
Correction: May 20, 2015
An earlier version of a picture caption with this article misstated the location of a Takata factory. It is in Romania, not Japan.