Air bag recall costs lead Takata to file for bankruptcy

Most assets will be bought by Key Safety Systems of Michigan for $1.6 billion

Japanese air bag maker Takata Corp. has filed for bankruptcy protection in Tokyo and the U.S., overwhelmed by lawsuits and recall costs related to its production of defective air bag inflators linked to the deaths of at least 16 people.

The company announced the move Monday morning Tokyo time. 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 inflators can explode with too much force when they fill up an air bag, spewing out shrapnel. Apart from the fatalities, they’re also responsible for at least 180 injuries, and 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.

Takata and the automakers were slow to address the problem with the inflators despite reports of deaths and injuries. Eventually they were forced to recall tens of millions of vehicles. Because of the size of the recall, some car owners face lengthy waits for replacement parts, meanwhile operating their cars worried that the air bag could malfunction in a crash.

U.S. lawmakers have criticized the pace of the recalls. At the end of April, only 22 percent of the 69 million recalled inflators in the U.S. had been replaced, leaving almost 54 million on the roads, according to the National Highway Traffic Safety Administration website.

The defect in the inflators stems 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.

At least $1 billion from the sale to Key is expected to be used to satisfy Takata’s settlement of criminal charges in the U.S. for concealing problems with the inflators. Of that amount, $850 million goes to automakers to cover their costs of the recalls. Takata already has paid $125 million into a fund for victims and a $25 million fine to the U.S. Justice Department.

Attorneys for those injured by the inflators worry that $125 million won’t be enough to fairly compensate victims, many of whom have serious facial injuries from metal shrapnel. One 26-yearold plaintiff will never be able to smile due to nerve damage, his attorney says.

The lead attorney for people suing the automakers said in a statement following 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.

That settlement will speed the removal of faulty inflators from 15.8 million vehicles and compensate consumers for economic losses, he said. Claims are continuing against Honda, Ford, Nissan and Takata.

Fallout from the bankruptcy filing came swiftly from the Tokyo Stock Exchange, which said it was stripping the company founded in 1933 from trading as of Tuesday.

Key, a Chinese company with international operations, makes inflators, seat belts and crash sensors for the auto industry. It is owned by China’s Ningbo Joyson Electronic Corp. Its global headquarters and U.S. technical center is in Sterling Heights, Mich.

Key also said it won’t cut any Takata jobs or close any of Takata’s facilities.