Takata's fight for survival gets even harder as airbag recall widens
The world’s largest automotive safety recall is about to get even bigger, adding to the hurdles that Japanese airbag supplier Takata Corp. is battling to survive the crisis.
The U.S. National Highway Traffic Safety Administration ordered a dramatic expansion of Takata airbag inflator recalls on Wednesday, more than doubling the number of hazardous parts covered by the callbacks in a move that the auto industry will spend the next several years sorting out.
NHTSA said in February it’s investigating all of the company’s inflators containing ammonium nitrate, the chemical propellant banned from future models.
“This is just another step in the long decline of Takata,” Jochen Siebert, managing director of JSC (Shanghai) Automotive Consulting Co., said before Wednesday's announcement. “I just can’t see how Takata can survive this disaster.”
An expanded safety campaign deals a further blow to President Shigehisa Takada, who has so far failed to contain a spiraling crisis that’s wiped out 75 percent of his family company’s market value in the past year. Last May, the airbag supplier set the record for the largest automotive recall in U.S. history by agreeing to almost double the number of vehicles called back to about 34 million.
NHTSA said an additional 35 million to 40 million Takata-made inflators must now be replaced, on top of the nearly 29 million inflators already covered by the largest and most complex recall campaign in U.S. history.
Credit Suisse Group AG has estimated that a recall of 50 million vehicles would cost the company about 375 billion yen ($3.5 billion), more than the value of its net assets. The number may increase to 75 million if it was limited to airbags without drying agents, according to Credit Suisse in a March 30 note. Takata put the tab for a comprehensive callback -- involving 287.5 million airbag inflators -- at about 2.7 trillion yen, according to a person familiar with the matter back in March.
A researcher hired by a coalition of automakers said in February that moisture seeping into Takata’s inflators was determined to be the reason the airbags may rupture. Using a drying agent, or desiccant, in the propellant prevents moisture from destabilizing the compound.
“Takata is working with regulators and our automaker customers to develop long-term, orderly solutions,” said company spokesman Jared Levy. Calls to the company’s headquarters weren’t answered on a holiday in Japan.
For Takata, the recalls are just accelerating a longer-term decline in demand for airbags given the advance in assisted driving technology like collision avoidance and automatic braking, according to Yale Zhang, a managing director at Autoforesight Shanghai Co. With automakers and technology companies including Alphabet Inc.’s Google working on fully self-driving cars, “passive safety systems like airbags are becoming a commodity and will eventually be phased out with the cars of the future,” he said.
Even so, it has been a fall from grace for Takata, which started in 1933 as part of the textile weaving industry and was among companies that produced parachutes for the Imperial Army during World War II. It later rose to prominence as one of the world’s largest makers of seat belts.
The company entered the airbag business in the 1980s at the behest of Honda Motor Co. That decade also marked Takata’s first forays outside of Japan. The company set up its first plant in Asia outside of Japan in South Korea in 1980, and began production in the UK in 1988. Takata set up its first joint venture in the U.S. in 1984.
The late Juichiro Takada, father of the current president, took the company public in 2006 and pushed expansion in overseas markets before his death in February 2011. Today, more than 80 percent of Takata’s sales are outside Japan.
Takata this week increased provisions for its airbag recalls, booking a combined 20.1 billion yen in charges, excluding costs related to recalls that are still under investigation, according to a statement on Monday. The company is scheduled to announce full-year results on May 11.
Takata is seeking sponsors that would replenish its capital and allow it to emerge as a new company, a person familiar with the matter said last month. Takata has estimated cash and equivalents may drop 24 percent to 49.7 billion yen by the end of March 2017 if recalls continue at the current pace, the person said. The company has a market value of 31 billion yen.
“The expansion of the Takata recall is no doubt a severe blow to the company and its future prospects,” said Scott Upham, founder of Valient Market Research, who has followed the airbag industry for more than two decades. “It is our forecast that Takata will ultimately survive this recall as a smaller supplier of seatbelts and electronics. Takata will likely need to exit the inflator business and possibly go through a bankruptcy phase in order to survive.”
Ryan Beene contributed to this report.