Air bag maker claims bankruptcy
Move comes after recall of 100 million faulty Takata inflators
DETROIT — Japanese air bag maker Takata Corp., facing lawsuits and recall costs, has filed for bankruptcy protection in Tokyo and the United States.
The company announced the expected action this morning in Tokyo. Takata confirmed that most of its assets will be bought by rival Key Safety Systems, based in suburban Detroit, for about $1.6 billion.
Takata’s executives sought to reassure their customers, suppliers and shareholders in a news conference early today. “As a group our company will continue to count on your understanding and cooperation as we endeavor to provide a stable supply of products,” the company said in a statement.
Takata was done in by defective air bag inflators that can explode with too much force, spewing out shrapnel. They’re responsible for at least 17 deaths and 180 injuries worldwide and have touched off the largest automotive recall in U.S. history. So far 100 million inflators have been recalled worldwide including 69 million in the U.S., affecting 42 million vehicles.
Under the agreement with Key, remnants of Takata’s operations will continue to manufacture inflators to be used as replacement parts in recalls. The recalls, which are being handled by 19 affected automakers, will continue.
Although Takata will use part of the sale proceeds to reimburse the automakers, experts say the companies still must fund a significant portion of the recalls themselves.
“It’s likely every automaker involved in this recall will have to subsidize the process because the value of Takata’s assets isn’t enough to cover the costs of this recall,” said Karl Brauer, executive publisher of Kelley Blue Book and Autotrader. The total cost of the recall has been estimated at $5 billion.
Key, based in suburban Detroit and owned by Ningbo Joyson Electronic Corp. of China, said it won’t cut any Takata jobs or close any of Takata’s facilities.
As of May 26, only 38 percent of the air bag inflators under recall in the U.S. had been repaired, according to data on the U.S. Department of Transportation’s National Highway Traffic Safety Administration website. In Japan, 73 percent of the close to 19 million air bags under recall have been repaired, a spokesman at the country’s transport ministry said this month.
At least $1 billion from the sale will be used to satisfy Takata’s settlement of criminal charges in the U.S. for concealing problems with the inflators.
The lead attorney for people suing the automakers said in a statement after the announcement that he doesn’t expect the bankruptcy to affect the pending claims against the companies. Settlement agreements with Toyota, Subaru, BMW and Mazda already have won preliminary court approval, Peter Prieto noted.
The Tokyo Stock Exchange reacted promptly to the bankruptcy filing, saying it was stripping the company founded in 1933 from trading as of Tuesday.
Takata’s troubles stem from use of the explosive chemical ammonium nitrate in the inflators to deploy air bags in a crash. The chemical can deteriorate when exposed to hot and humid air and burn too fast, blowing apart a metal canister.
Honda first started recalling Accord and Civic models in 2008 due to the flaw. That same year, Takata began adding a drying agent to its propellant formula in an attempt to fix the problem. It has until the end of 2019 to prove to U.S. regulators that those air bags are safe.
In February, Takata pleaded guilty to fraud and agreed to the $1 billion settlement. Lawyers acknowledged in court that the company would have to be sold to fund the settlement. Automakers would get $850 million in restitution for recall costs, and a $25 million fine would be paid to the government. Takata already has paid $125 million into a fund for victims.
Information for this article was contributed by Tom Krisher, Marcy Gordon and Elaine Kurtenbach of The Associated Press; and by Kevin Buckland, Masatsugu Horie, Ryan Beene and John Lippert of Bloomberg News.