Takata, the Japanese manufacturer at the center of the massive automotive airbag recall and numerous lawsuits, has filed for bankruptcy protection in Japan and the U.S. What remains to be seen, however, is the impact on the automotive industry.
The company’s airbag inflators have been linked to at least 16 deaths and 180 injuries around the world because they can rupture and send metal fragments flying inside a car. Takata still faces billions in lawsuits and recall-related costs to its clients, including Honda, BMW, Toyota and others, which have been paying recall costs to date. It also faces potential liabilities stemming from class action lawsuits in the U.S., Canada and other countries. Industry sources have said that recall costs could climb to approximately $10 billion.
TK Holdings, Takata’s U.S. operations, filed Chapter 11 bankruptcy in Delaware on Sunday, listing liabilities of $10 billion to $50 billion, while the Japanese parent filed for protection with the Tokyo District Court.
Scott Caudill, chief operating officer of TK Holdings, said in a court affidavit that the company “faces insurmountable claims” relating to the recalls and owes billions of dollars to automakers, Reuters reports. He disclosed that Takata has recalled, or expects to recall by 2019, about 125 million vehicles worldwide, including more than 60 million in the U.S.
Takata also announced it has agreed to be largely acquired for $1.6 billion by Key Safety Systems (KSS), a Michigan-based parts supplier owned by Chinese company Ningbo Joyson Electronic Corp. In a deal that took 16 months to finalize, KSS agreed to take over Takata’s viable operations, while the remaining operations will be reorganized to continue producing millions of replacement airbag inflators, the two firms said, Associated Press reports. The U.S. company would keep “substantially all” of Takata’s 60,000 employees in 23 countries and maintain its factories in Japan. The agreement is meant to allow Takata to continue operating without interruptions and with minimal disruptions to its supply chain.
At least $1 billion from the sale 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 help cover their costs from the recalls. Takata also already has paid $125 million into a fund for victims and a $25 million fine to the U.S. Justice Department.
“This is the largest, most expensive recall in the history of the automotive industry,” Karl Brauer, executive publisher for Autotrader and Kelley Blue Book, says in an article on Detroit News. “Takata’s bankruptcy was almost a foregone conclusion, but the need to replace tens of millions of airbags remains. It’s a textbook case of what happens when a small number of suppliers service the entire global auto industry: In theory that system saves everyone money, but when a problem like this flares up, there’s no escaping the impact.”
Michelle Krebs, executive analyst for Autotrader, points out in the Detroit News article that, ultimately, automakers will be held responsible for hefty fines that have been incurred, and for fixing the cars that have faulty airbag inflators.
“Presumably, Takata will continue manufacturing airbags throughout the bankruptcy proceedings. Longer-term, the question is whether Takata, with a new owner, can rebuild trust with automakers to build future business,” Krebs says. “That will be a daunting task. A plus for Takata is the fact that the number of airbag suppliers has dwindled to a mere few.”
What are your thoughts on Takata’s filings? More importantly, what are your thoughts on a few key suppliers serving an entire industry? Is the long-term savings worth a possible setback, even if it is significant?