Takata filing clouds sector’s biggest recall
Bankruptcy of airbag maker a wild card
TOKYO/WASHINGTON • The bankruptcy of troubled airbag maker Takata Corp. isn’t just a crisis for its employees and suppliers. It also throws a wild card into one of the biggest and most complicated recalls in automotive history.
The auto- parts supplier has pledged to recall and replace tens of millions of defective airbag inflators used by 19 car and truck makers around the world, from Tesla Inc. to Toyota Motor Corp. Takata filed on Monday for bankruptcy protection in the U. S. and Japan and announced a takeover by U. S. airbag maker Key Safety Systems Inc. for 175 billion yen (US$1.6 billion). China’s Ningbo Joyson Electronic Corp. acquired Key Safety last year for US$920 million.
The filing to restructure, which l i sted more t han US$ 10 billion in liabilities, doesn’t relieve a manufacturer of recall responsibilities. However, should its financial assets be exhausted before all the work is done, carmakers may have to cover the difference.
U. S. bankruptcy l aws permit a would- be buyer to acquire Takata’s desirable assets, but not necessarily assume unwanted liabilities — including recall obligations, according to Robert Rasmussen, a University of Southern California law professor specializing in corporate reorganizations.
Funds raised by the asset sale would go toward funding Takata’s production of replacement parts, Rasmussen said. U. S. law treats a manufacturer’s recall obligations in bankruptcy as a claim of the U.S. government and they receive priority “to ensure that consumers are adequately protected from any safety defect” in a manufacturer’s products, according to statute.
“The big risk,” Rasmussen said, “is how much are the assets worth versus what’s the cost to do the replacements.”
Scott Upham, president of Valient Market Research, estimates that automakers and suppliers globally face US$ 5 billion in future costs tied to the recalls, about US$2 billion of which can be tied to Takata. The company has a market value of about US$ 120 million and already faces debt and penalty obligations that are more than double its cash. Upham estimates a Takata asset sale will generate about US$ 1.5 billion to US$2 billion.
“There’s not e nough money,” Upham said. Automakers may have to cover any shortfall, he said.
The car companies have already shifted business away from Takata and toward rivals for about 70 per cent of the parts to repair the millions of vehicles recalled for the company’s defective airbag inflators, which can explode with too much force and spray drivers and passengers with metal and plastic shards. That should assure enough new inflators for the estimated 100 million defective ones forecast to be replaced worldwide.
Only 38 per cent of the 43 million airbag inflators under recall in the U. S. had been repaired as of May 26, according to data on the U.S. National Highway Traffic Safety Administration website. In Japan, 73 per cent of the close to 19 million airbags under recall have been repaired, a spokesman at the country’s transport ministry said this month.
At least 17 deaths have been linked to the devices worldwide. Mounting liabilities associated with the faulty airbags have forced Takata to seek a buyer that would see it through a costly restructuring process. A Takata steering committee earlier this year recommended Key Safety Systems as the preferred bidder.
The deal is structured to shield Key Safety from shouldering the cost of Takata’s projected 100- million unit recall. The inflator business will stay with Takata as will the financial responsibility for the recall, which will cost an estimated 1 trillion yen ( US$ 9 billion), according to Takaki Nakanishi, an analyst at Jefferies Group LLC.
The challenges for the acquirer are manifold. Takata posted its third- straight annual loss even without including the full costs of repairing millions of airbags, which automakers are now paying for. It faces a talent exodus and auto industry distrust.
“It would be hard for Key Safety Systems to put in huge amounts of money if there’s no guarantee against unexpected liabilities, after any deal,” said Mitsuhiro Harada, a researcher at Tokyo Shoko Research. “Takata is making money in non- airbag operations, so if they can drastically cut recall- related debt through bankruptcy, they can surely revive soon.”
Automakers have avoided disruptions by sourcing replacement parts from Takata competitors Autoliv Inc., ZFTRW and Daicel Corp. Autoliv, for example, has already provided 15 million replacement inflators and has orders for another 15 million into 2019, company spokesman Thomas Jonsson said.
“We are working with suppliers to ensure a steady supply of replacement inflators for our customers,” said Kelly Stefanich, a Toyota spokeswoman in Princeton, Ind. “We don’t anticipate any supply disruptions at this time.” Honda chief executive Takahiro Hachigo said at a June 16 media briefing that the automaker hasn’t heard any specifics about the Takata bankruptcy plan.
The Japanese government has said it’s focused on completing the recall process and ensuring there’s no disruption of the supply chain.
In the U. S., NHTSA has been co- ordinating the pace of recalls and the flow of parts under a legally-binding 2015 agreement with Takata and 19 companies.