Takata's future costs still unclear even after bankruptcy
Takata Corp.'s bankruptcy filing seems set to regain stability
for the company in the future but questions remain about the
turnaround as Takata still faces potential additional costs from
recalls and litigation.
Takata filed for bankruptcy protection on Monday with
liabilities estimated at more than 1 trillion yen ($9 billion), the
largest bankruptcy by a Japanese manufacturer in the postwar period.
The auto parts supplier is in the midst of a global recall of
faulty air bag inflators that have affected 42 million vehicles
across 19 automakers and are linked to at least 11 deaths in the
United States alone. The defective part can explode and spray
shrapnel into drivers and passengers.
"Honestly, I still think things are going to be tough for
Takata," said Takeshi Miyao, an analyst at Tokyo-based market
The automakers including Honda Motor Co. and Toyota Motor Corp.
have been paying for the costs to replace inflators. But the
bankruptcy filing will likely leave most of the financial burden to
them without getting much paid back by Takata.
Toyota and Honda said after Takata's decision that they may not
be able to collect the costs of 570 billion yen and 556 billion yen
respectively from the failed company. Takata said Monday it needs to
proceed with restructuring to finalize its overall debt.
"It's still unclear how much of those liabilities Takata will
shoulder and meanwhile, there are still risks of litigation
liabilities as well," Miyao said.
U.S. auto safety regulators in 2015 imposed a $200 million
civil fine on Takata for providing inadequate and inaccurate
information to regulators about the defect. The air bag maker also
agreed this year to pay $1 billion over its handling of the recall.
The husband of a Malaysian doctor who was killed by metal
shrapnel expelled from a defective air bag also filed a wrongful
death suit in the United States against Takata and Honda among other
Under a restructuring plan, the Japanese air bag maker selected
U.S. auto parts maker Key Safety Systems Inc. to help it get through
a costly restructuring process.
Takata will separate its healthy business units, including its
seatbelt and child seat operations, into a new company which Key
Safety will buy for 175 billion yen. The recall-related liabilities
will be shouldered by the remaining entity.
Takata had been seeking out-of-court proceedings in discussions
with automakers to ensure stable supply. The automakers were
initially open to the plan but they later shifted to court-led
reforms to ensure a more transport process of deciding how to split
the monetary burden between them and Takata.
The remaining entity still faces the risk of going bankrupt in
the future, Miyao said.
"Then Takata's suppliers, especially smaller businesses, will
not get their money back and litigation costs will not be paid,"
Analysts also point out that since Key Safety Systems will buy
the new entity, Takata air bags and seatbelts are expected to be
fully rebranded as the U.S. maker's products.
But even if Takata will have to give up its brand, Miyao said
that the worst case scenario, where carmakers will have to halt
production due to a disruption in air bag supply, is likely to be
"Takata air bags have around a 20 to 30 percent share which
means if supply stops, the same amount of cars will not be
produced...for carmakers, the restructuring plan was the only way to
make a soft landing to the situation," Miyao said.
Shintaro Niimura, an analyst at Nomura Securities Co. gave an
optimistic view on Takata's future.
"A Japanese air bag maker is disappearing and Japanese carmakers
will be losing a close partner...but I'm not worried about any
negative impact on the auto industry," Niimura said.
While the Takata brand name will be replaced, infrastructure
will be carried on and continue to ensure a stable supply of air
bags. "I'm not expecting any trouble," Niimura said. (June 26)