Khaleej Times

Takata bankruptcy poses a risk to auto industry’s biggest recall

- Kevin Buckland, Masatsugu Horie and Ryan Beene

TOKYO — The expected bankruptcy of troubled air-bag 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 Japan-based auto supplier has pledged to recall and replace tens of millions of defective air-bag inflators used by 19 car and truck makers around the world, from Tesla to Toyota Motor Corp. Takata is expected to file on Monday for bankruptcy protection and announce a takeover offer from Key Safety Systems for about ¥180 billion ($1.62 billion), according to people familiar with the matter, who asked not to be identified because the informatio­n is private.

A filing to restructur­e 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.

US bankruptcy laws 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 specialisi­ng in corporate reorganisa­tions. Funds raised by an asset sale would go towards funding Takata’s production of replacemen­t parts, Rasmussen said. US law treats a manufactur­er’s recall obligation­s in bankruptcy as a claim of the US 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 $5 billion in future costs tied to the recalls, about $2 billion of which can be tied to Takata. He estimates a Takata asset sale will generate about $1.5 billion to $2 billion. “There’s not enough money,” Upham said. Automakers may have to cover any shortfall, he said.

The car companies have already shifted business away from Takata and towards rivals for about 70 per cent of the parts to repair the millions of vehicles recalled for the company’s defective airbag inflators. — Bloomberg

 ?? — AFP ?? Takata may file for bankruptcy protection on Monday.
— AFP Takata may file for bankruptcy protection on Monday.

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