“If we go for­ward with this, some­body will be killed”

Takata and the big­gest auto re­call in his­tory

Bloomberg Businessweek (North America) - - Front Page -

Car­los So­lis was driv­ing a fa­mil­iar route, the few miles from his home to his brother’s apart­ment out­side Hous­ton, on a Sun­day in Jan­uary last year. His cousin sat be­side him, and a dog was in the back seat. Just as they turned into the com­plex, their car, a 2002 Honda Ac­cord, was hit. It was a low-speed col­li­sion with mod­est dam­age. Both front air bags de­ployed. So­lis’s cousin got out of the car un­in­jured. The dog was fine, too. But So­lis didn’t move. He’d been hurt, though at first it wasn’t ob­vi­ous how. His cousin called So­lis’s brother, Scott, who ran to the car. Scott tried to stanch the flow of blood from a deep wound in So­lis’s neck; so did the paramedics. So­lis died at the crash scene.

An au­topsy, now part of court records, showed that a round piece of metal the size of a hockey puck had shot out of the Ac­cord’s air bag, sliced into So­lis’s neck, and lodged in his cer­vi­cal spine and shoul­der. It sev­ered his carotid artery and jugu­lar vein and frac­tured his wind­pipe. So­lis was 35 and the fa­ther of two teenagers. He was also the sixth per­son in the U.S. killed by an ex­plod­ing air bag made by the Ja­panese com­pany Takata.

Two weeks af­ter So­lis’s death, his wife re­ceived a re­call notice for the air bag. The first Takata re­call had come seven years ear­lier, in 2008, lim­ited to air bags in about 4,000 Hon­das. The ef­fort has been ex­panded 20 times, most re­cently in May, and is the largest and most com­plex in U.S. his­tory. It cov­ers more than 60 million air bags in ve­hi­cles from BMW, Ford, Honda, Tesla, Toy­ota, and 12 oth­ers, or one of ev­ery five cars on the road in the U.S. The re­call could af­fect more than 100 million ve­hi­cles around the world. Shrap­nel from the de­vices has killed 13 peo­ple, in­clud­ing 10 in the U.S., and in­jured more than 100.

A Se­nate in­ves­ti­ga­tion and per­sonal in­jury lit­i­ga­tion have turned up com­pany doc­u­ments sug­gest­ing that Takata ex­ec­u­tives dis­counted con­cerns from their own em­ploy­ees and hid the po­ten­tial dan­ger from Honda, their big­gest cus­tomer, as well as from U.S. reg­u­la­tors. A Takata spokesman says via e-mail that the “data in­tegrity prob­lems re­flected in some of the doc­u­ments cited by the Se­nate Com­mit­tee and pro­duced in lit­i­ga­tion are en­tirely in­ex­cus­able and will not be tol­er­ated or re­peated,” but are not re­lated to the root cause of the air bag rup­tures. The com­pany de­clined to com­ment fur­ther.

It will take at least three years for Takata and other man­u­fac­tur­ers to make enough air bags to re­place the com­pany’s de­fec­tive ones. Be­cause of their chem­istry, Takata’s de­vices be­come less sta­ble over time. That leaves mil­lions of driv­ers with cars that could con­tain an air bag that’s like a tick­ing time bomb.

tex­tile maker, pro­duced para­chutes for the Im­pe­rial Ja­panese Army dur­ing World War II. In 1960, Takata be­gan man­u­fac­tur­ing seat belts for Ja­pan’s car­mak­ers, which were lead­ing the coun­try’s in­dus­trial ex­pan­sion. It was the only com­pany whose seat belts passed the U.S. Na­tional High­way Traf­fic Safety Ad­min­is­tra­tion (NHTSA) crash test stan­dards in 1973.

A few years later, Honda asked Takata to look into man­u­fac­tur­ing air bags. The au­tomaker had a small stake in its sup­plier, and they worked closely to­gether. When Honda opened a plant in Eng­land, Takata opened one in Ire­land. When Honda went to China, so did Takata. “They were in lock­step to con­quer the world,” says Scott Upham, the head of Takata’s mar­ket­ing divi­sion in Auburn Hills, Mich., from 1994 to 1996 and now the chief ex­ec­u­tive of­fi­cer of Valient Mar­ket Re­search. De­spite Honda’s en­thu­si­asm about air bags, Juichiro Takada, who had taken over from his fa­ther as CEO in 1974, hes­i­tated. Air bags de­ploy in con­trolled ex­plo­sions. Their de­signs are drawn from rock­ets and mu­ni­tions. A for­mer Honda en­gi­neer, Saburo Kobayashi, de­scribed Takada’s reser­va­tions in a 2012 me­moir. “If any­thing hap­pens to the air bags, Takata will go bankrupt,” Takada said, ac­cord­ing to the book. “We can’t cross a bridge as dan­ger­ous as this.” Even­tu­ally, he re­lented.

Air bags aren’t filled with air. They’re filled with gas cre­ated by a burn­ing pro­pel­lant. Pro­pel­lants are used in jet air­craft to pro­duce thrust; in the in­te­ri­ors of gun cham­bers; and in min­ing and de­mo­li­tion. In air bags, the pro­pel­lant is com­pressed into as­pirin- size tablets and placed in a metal tube called an in­fla­tor. Af­ter a crash, the tablets are ig­nited and con­vert from solid to gas, which erupts out of the in­fla­tor and into the bag in mil­lisec­onds. Air bags have been manda­tory in ev­ery U. S. car since 1989, and reg­u­la­tors say they save about 2,500 lives ev­ery year. Un­like drugs, there’s no ap­proval process for air bags.

“There are about 10,000 com­po­nents in a car,” Upham says, “and air bags are prob­a­bly the most highly en­gi­neered among them, even more than the elec­tron­ics.” They have to be small and light enough to fit into the steer­ing wheel and other tight spa­ces, and they have to de­ploy with just the right force. Pro­pel­lant ex­perts keep patent of­fices busy. They’re al­ways try­ing to come up with for­mu­las that are more ef­fi­cient, cheaper, and pro­pri­etary. Each of the world’s five main air bag man­u­fac­tur­ers has de­vel­oped its own chem­i­cal com­pound.

It’s best to make ex­plo­sives in a place with low hu­mid­ity. Takata started mak­ing air bag in­fla­tors in the U.S. in 1991, at a fa­cil­ity in Moses Lake, Wash. It’s near an old U.S. Air Force base, east of the Cas­cade Range, where the high-plains air is dry. Takata set up a joint ven­ture with a com­pany called Rocket Re­search, and when it looked like the busi­ness would suc­ceed, it bought the other 50 per­cent, says Mark Lil­lie, who was hired as a pro­pel­lant en­gi­neer in 1994 and has spo­ken out about his ex­pe­ri­ences at the com­pany. “They spent hun­dreds of mil­lions of dol­lars on the fa­cil­ity,” he says. “Takata was work­ing hard to catch up and grab mar­ket share by be­ing tech­no­log­i­cally so­phis­ti­cated. We were mov­ing so fast. It was ter­ri­fy­ing, but ex­cit­ing.”

Takata’s orig­i­nal pro­pel­lant was based on a com­mon chem­i­cal, sodium azide, de­rived from a for­mula the mil­i­tary had de­vel­oped for launch­ing tor­pe­does and mis­siles. Sodium azide was dif­fi­cult to handle in the fac­tory, though—prone to ex­plod­ing when ex­posed to air, light, or jostling. When in­haled, it was toxic, and af­ter the air bags de­ployed, they left a residue in­side cars. Most com­pa­nies that used it were look­ing for an al­ter­na­tive.

Takata’s sec­ond-gen­er­a­tion pro­pel­lant, in­tro­duced in 1996, was based on a chem­i­cal called tetra­zole, which was safer than sodium azide and just as ef­fec­tive. Re­searchers code-named the for­mula 3110, and the com­pany mar­keted it as En­vi­ro­sure. Takata was the first to use tetra­zole, and the chem­i­cal helped the com­pany bring in Ford and Gen­eral Mo­tors, ex­pand­ing its share of the North Amer­i­can mar­ket to 10 per­cent. But the sup­ply of high-qual­ity tetra­zole was lim­ited and costly. “Takata made prom­ises to cus­tomers for vol­umes that could not be sup­ported by the ex­ist­ing pipe­line for the raw ma­te­ri­als,” Lil­lie says. “The cul­ture was: We will make a com­mit­ment to the cus­tomer, and then we will work like the dick­ens to make it hap­pen some­how.”

When Takada vis­ited Moses Lake in 1997, he took the man­agers to din­ner to thank them for keep­ing up with pro­duc­tion quo­tas in tough cir­cum­stances. Lil­lie says Takada told a story: Ja­panese sci­en­tists once cul­ti­vated wasabi in labs and test farms, he said, and while it looked beau­ti­ful, it had no fla­vor. Nat­u­ral wasabi grows on the side of rugged moun­tains. The sci­en­tists re­al­ized that the stress on the wasabi pro­duced its dis­tinct fla­vor. Lil­lie says, “Then

Juichiro turned to the group, paused, and said: ‘ You are the wasabi! You’ve been through these ex­treme things, and it’s go­ing to make you stronger!’ ”

Sys­tems Labs, and gave it an as­sign­ment: de­velop a pro­pel­lant for­mula that would be eas­ier and cheaper to pro­duce than En­vi­ro­sure and would al­low the air bags them­selves to be smaller and lighter. “ASL looked at ev­ery chem­i­cal com­pound known to man,” Upham says. Among them was am­mo­nium ni­trate, the most widely used com­mer­cial chem­i­cal ex­plo­sive in the world, al­most as pow­er­ful as dy­na­mite. In 1995, Ti­mothy Mcveigh used 2,000 pounds of the chem­i­cal to blow up the Al­fred P. Mur­rah Fed­eral Build­ing in Ok­la­homa.

Am­mo­nium ni­trate was about one-tenth the price of tetra­zole, ac­cord­ing to Upham, who also re­viewed in­dus­try patents. But am­mo­nium ni­trate had a crit­i­cal flaw that he says led other air bag mak­ers to give up on it: Am­mo­nium ni­trate has five phases of vary­ing den­sity that make it hard to keep sta­ble over time. A pro­pel­lant made with am­mo­nium ni­trate would swell and shrink with tem­per­a­ture changes, and even­tu­ally the tablet would break down into pow­der. Wa­ter and hu­mid­ity would speed the process. Pow­der burns more quickly than a tablet, so an air bag whose pro­pel­lant had crum­bled would be likely to de­ploy too ag­gres­sively. The con­trolled ex­plo­sion would be just an ex­plo­sion. “Ev­ery­body went down a cer­tain road, and only Takata went down an­other road,” says Jochen Siebert, who’s fol­lowed the air bag in­dus­try since the 1990s and is now man­ag­ing di­rec­tor of JSC Au­to­mo­tive Con­sult­ing. “If you read the con­fer­ence pa­pers from back then, you can ac­tu­ally see that peo­ple said, ‘No, you shouldn’t. It’s dan­ger­ous.’ ”

When Lil­lie and other Moses Lake engi­neers met with their ASL col­leagues in De­cem­ber 1998 to re­view a new de­sign us­ing am­mo­nium ni­trate, Lil­lie says they were told the phase sta­bil­ity prob­lem had been solved. He re­jected the de­sign none­the­less. ASL wasn’t able to pro­vide doc­u­mented ev­i­dence of the safety of its prod­uct, he said in a Jan­uary 2016 de­po­si­tion, taken as part of a per­sonal in­jury suit against Takata and Honda. “Never any ev­i­dence, never any test re­sults, never any test re­ports, noth­ing to sub­stan­ti­ate they had over­come the phase sta­bil­ity prob­lem,” Lil­lie tes­ti­fied.

“At the meet­ing, I lit­er­ally said that if we go for­ward with this, some­body will be killed,” he adds in an in­ter­view, echo­ing his tes­ti­mony. Af­ter the de­sign re­view, Lil­lie says he met sep­a­rately with the en­gi­neer who served as the li­ai­son with Takata head­quar­ters in Tokyo. “What I gath­ered from the con­ver­sa­tion was, ‘Yes, I’ll pass on your con­cerns, but don’t ex­pect it to do any good, be­cause the de­ci­sion has al­ready been made.’ ” The head of ASL was Paresh Khand­ha­dia, who had a mas­ter’s in chem­i­cal en­gi­neer­ing and “was a very smooth op­er­a­tor,” Lil­lie says. “Tokyo put a tremen­dous amount of stock in his cre­den­tials.” Nei­ther Khand­ha­dia, who left Takata in 2015, nor his lawyer re­sponded to re­quests for com­ment. Dur­ing a de­po­si­tion last year, Khand­ha­dia was nearly silent, cit­ing his Fifth Amend­ment right not to tes­tify against him­self.

Lil­lie says he left Takata in 1999, partly be­cause the com­pany ig­nored his warn­ings about am­mo­nium ni­trate. He says Takata’s ex­ec­u­tives and work­force were un­pre­pared to take on such a dif­fi­cult de­sign and man­u­fac­tur­ing process. “Takata engi­neers claimed they had this magic,” he says. “No one else could fig­ure it out, and they had.”

As the Moses Lake fa­cil­ity pre­pared to man­u­fac­ture in­fla­tors with the am­mo­nium ni­trate pro­pel­lant, some of Lil­lie’s for­mer em­ploy­ees be­came anx­ious. “It was al­ways push, push, push the en­ve­lope,” says Michael Brit­ton, a pro­pel­lant en­gi­neer who left in 2000. Lil­lie tes­ti­fied that a Takata en­gi­neer wasn’t al­lowed to in­ves­ti­gate an in­fla­tor that rup­tured dur­ing test­ing, and that when he protested, he was re­as­signed. A qual­ity man­ager told Lil­lie that he was pres­sured by an ex­ec­u­tive at Moses Lake to ma­nip­u­late test data. “Tor­ture the data un­til it con­fesses” is the way the engi­neers de­scribed it, Lil­lie said in his de­po­si­tion. A Takata spokesman says ASL con­ducted test­ing that “went be­yond in­dus­try stan­dards at the time” and found no sig­nif­i­cant changes in the pro­pel­lant’s per­for­mance or phys­i­cal prop­er­ties, and that a Ger­man re­search in­sti­tute has since tested the pro­pel­lant and found no ev­i­dence of a loss of phase sta­bil­ity. He also says there’s no ev­i­dence that Lil­lie raised any con­cerns about us­ing am­mo­nium ni­trate or that Takata ex­ec­u­tives weren’t in­ter­ested in hear­ing them.

In Novem­ber 2000, Tom Sheri­dan, then a Takata prod­uct en­gi­neer, wrote a memo to his bosses about test data for Honda. “The ob­jec­tive of this cover let­ter is to point out that the Honda test re­port has in­cor­rect data, data that can­not be val­i­dated, data that was in­cor­rectly la­beled, or data that does not ex­ist,” it said. The memo was turned over to plain­tiffs’ lawyers su­ing the two com­pa­nies. Sheri­dan, who left Takata in 2002, tes­ti­fied that af­ter he sub­mit­ted the re­port, none of his bosses spoke to him about the is­sues he raised. A com­pany spokesper­son says: “Takata deeply re­grets that this val­i­da­tion test data was in­cor­rectly re­ported,” but that the test re­sults aren’t re­lated to the cause of the rup­tures.

the com­pany was “pret­ty­ing up” air bag data sent to Honda. At one point, the de­vices were said to have passed tests that never oc­curred. “It has come to my at­ten­tion that the prac­tice has gone be­yond all rea­son­able bounds and likely con­sti­tutes fraud,” he wrote in an e-mail pro­duced in a law­suit. Schu­bert, now a mem­ber of Takata’s new-prod­uct safety group, wasn’t made avail­able for an in­ter­view. Takata says it apol­o­gizes for these lapses, but they’re un­re­lated to the cur­rent air bag in­fla­tor re­calls.

Fire­balls spewed out, win­dows on nearby houses were shat­tered, and local pa­pers re­ported that au­thor­i­ties had to evac­u­ate thousands of res­i­dents. Takata says only that em­ploy­ees weren’t han­dling “pro­pel­lant scrap” prop­erly and that af­ter­ward the fac­tory im­proved its safety pro­ce­dures. The plant re­sumed op­er­a­tions within a month, and Takata’s cus­tomers didn’t suf­fer any pro­duc­tion dis­rup­tions. Au­to­mo­tive News called Takata’s quick re­cov­ery “re­mark­able.”

Takata engi­neers were fil­ing patents for pro­cesses to im­prove the sta­bil­ity of am­mo­nium ni­trate. One de­scribed coat­ing the chem­i­cal par­ti­cles with paraf­fin to cre­ate a shield against heat and hu­mid­ity, says Lil­lie, who’s re­viewed the doc­u­ments. An­other said that phase-sta­bi­lized am­mo­nium ni­trate pro­pel­lants “ex­hibit sig­nif­i­cant ag­gres­sive be­hav­ior with re­gard to bal­lis­tic prop­er­ties” and that air bag in­fla­tors are sub­ject to en­vi­ron­men­tal con­di­tions that can cause prob­lems, in­clud­ing “over-pres­sur­iza­tion of the in­fla­tor lead­ing to rup­ture.” Takata pre­vi­ously has

WHEN A COL­LI­SION OC­CURS, A SIG­NAL IS said that it’s “al­ways un­der­stood the ef­fects that SENT UP THE STEER­ING COL­UMN TO AN AIR BAG MOD­ULE. THIS ALL HAP­PENS IN ABOUT mois­ture may have on the com­bus­tion charac

15 MIL­LISEC­ONDS. IN­SIDE THE AIR BAG ter­is­tics of am­mo­nium ni­trate, but phase-stabiMODUL­E, AN IGNITER FIRES IN A METAL

CASE FILLED WITH PRO­PEL­LANT TABLETS lized am­mo­nium ni­trate pro­pel­lant is safe and ef­fec­tive for use in air bag in­fla­tors when prop­erly en­gi­neered and man­u­fac­tured.”

In 2006 a Takata en­gi­neer­ing man­ager sent an e-mail to a col­league that sug­gests data about po­ten­tial prob­lems with prod­uct tests were be­ing hidden or ig­nored: “It is yet an­other mess-o-shit we will be handed with no real fix pos­si­ble. The plant should have been scream­ing bloody mur­der long ago.” A Takata spokesman re­it­er­ates that such data in­teg

THE PRO­PEL­LANT TABLETS ARE DE­SIGNED TO rity prob­lems are in­ex­cus­able and won’t be tol

BURN AT A STEADY RATE, LIKE SOLID ROCKET er­ated, but that they have noth­ing to do with the

FUEL, PRO­DUC­ING GASES THAT INFLATE THE root cause of the air bag rup­tures.

AIR BAG IN ABOUT 20 MIL­LISEC­ONDS Takata went pub­lic in Novem­ber of that year, list­ing shares on the Tokyo Stock Ex­change. The Takada fam­ily and trust re­tained a stake of more than 80 per­cent (it’s now about 60 per­cent). A suc­ces­sion plan was put in place the fol­low­ing year. Juichiro Takada be­came chair­man, while re­main­ing CEO un­til the time came to hand over lead­er­ship to his son Shige­hisa, then 41, who was pro­moted to pres­i­dent. Akiko Takada, Shige­hisa’s mother, re­signed as a di­rec­tor and be­came an ad­viser. The dif­fer­ences be­tween fa­ther and son were strik­ing: Juichiro, known as Jim to his Amer­i­can em­ploy­ees, would get down on his knees to in­spect fac­tory equip­ment. Lil­lie de­scribes Shige­hisa as awk­ward, quiet, and en­ti­tled. When he vis­ited Moses Lake in the late 1990s, he wouldn’t put on safety glasses, and Lil­lie didn’t let him onto the fac­tory floor.

prob­lem—a man­u­fac­tur­ing mis­take at its other plant at Moses Lake—and Honda had is­sued a re­call for those air bags. “My take is that if NHTSA had done the right thing and re­ally probed Takata, they could have caught it a lot sooner and we wouldn’t have the cri­sis we have to­day,” says Clarence Dit­low, the ex­ec­u­tive di­rec­tor of the non­profit Cen­ter for Auto Safety. “Takata made one of the most colos­sal blun­ders in the his­tory of the in­dus­try.”

stopped at a red light in Mor­row, Ga., and the air bag in her 2001 Honda Civic de­ployed by mis­take. The in­fla­tor ex­ploded, and shred­ded metal hit Wil­liams in the neck, sev­er­ing her carotid artery. She stuck two fin­gers in the gap­ing wound to stop the bleed­ing as she waited for an am­bu­lance. The blood loss led to sev­eral strokes, a seizure, and a speech dis­or­der, ac­cord­ing to a law­suit she filed against Takata and Honda. The com­pa­nies set­tled her case con­fi­den­tially.

Honda ex­panded re­calls of cars with Takata air bags in 2009, 2010, and 2011, even­tu­ally to in­clude 2.5 million ve­hi­cles. In 2013, Takata filed a de­fect re­port with U.S. reg­u­la­tors stat­ing that cer­tain pas­sen­ger-side air bags could rup­ture as a re­sult of man­u­fac­tur­ing er­rors that were ex­ac­er­bated when the air bags were ex­posed to heat and hu­mid­ity. A year later, NHTSA asked 10 car com­pa­nies to re­call 7.8 million ve­hi­cles with Takata air bags in seven South­ern states as well as Puerto Rico and the U.S. Vir­gin Is­lands. Af­ter the an­nounce­ment, so many peo­ple checked the NHTSA web­site that it crashed. Toy­ota ad­vised pas­sen­gers not to sit in the front seats of sev­eral mod­els un­til the air bags were re­placed.

The sit­u­a­tion in Mon­clova threat­ened to cre­ate other prob­lems for Takata. Guillermo Apud, a su­per­vi­sor at the plant, had to scold em­ploy­ees in a May 2011 e-mail about their sloppy, and po­ten­tially dan­ger­ous, work habits. He had no­ticed that they were “re­work­ing,” try­ing to fix de­fec­tive parts on the in­fla­tor as­sem­bly line rather than re­mov­ing them to be ex­am­ined later. “Re­work on the line is PRO­HIB­ITED!!! We can’t have lead­ers/ ma­te­ri­als/peo­ple/op­er­a­tors RE­WORK­ING ma­te­rial left and right with­out ANY con­trol, this is why we have de­fect upon de­fect.

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