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Takata considers bankruptcy to ease financial strain from massive recall

The latest chapter in a years-long recall of deadly airbags that affect millions of cars from more than a dozen car brands.

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    The Mexican and the Japanese national flags wave outside the Takata plant, the world's second-largest supplier of airbags and seatbelts, in Monclova, Mexico.
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Beleaguered auto parts maker Takata, the source of the biggest recall in the history of cars, is weighing a bankruptcy option to help it control the escalating costs of replacing approximately 100 million defective airbags worldwide.

The Japanese company, which makes airbags, seat belts, and steering wheels, reportedly is considering filing for Chapter 11 bankruptcy protection for its Michigan-based arm, TK Holdings. The US branch is responsible for nearly half of Takata's global sales. Such a filing would buy the company some time as it searches for an investor to help it manage the costs associated with replacing defective airbags that are connected to at least 16 deaths and more than 100 injuries worldwide.

“We hope to have out-of-court settlement and our position hasn’t changed since the beginning,” said Takata chief financial officer Yoichiro Nomura on Friday, according to Bloomberg. “There’s no other option to ensure the stable supply of the products. Court-led bankruptcy will make it difficult for the business to continue.”

If Takata is held solely responsible for the airbag defect, it will have to spend $13 billion on the recalls announced so far, according to Reuters. Affected automakers, who made vehicles outfitted with the recalled airbags, have fronted more than $10 billion for the costs, Financial Times reports.

The defect has to do with a propellant that degrades after exposure to heat and humidity and causes airbag inflators, upon impact, to burst the bag and shoot metal shards into the car. The volatile component made the airbags cheaper than those of competitors, helping Takata's business grow.

Takata is one of the biggest airbag makers in the world and counts Honda, BMW, Fiat Chrysler, Ford, General Motors, Mazda, Mitsubishi, Nissan, Subaru, and Toyota among its clients. More than a dozen carmakers have recalled Takata airbags worldwide in what experts call one of the most complex recalls in history.

“Takata supplies millions and millions of airbags to countless automakers; tracking those cars down is nearly impossible,” says Michael Harley, an analyst at Kelley Blue Book. “It’s a mess, it’s a huge mess.”

The immense scale of the problem is partly the result of a trend in global manufacturing to outsource the making of parts, Mr. Harley says. In the auto industry and elsewhere, many brands now rely on just a few suppliers. This leaves entire industries vulnerable to disruptions.  

“Today’s cars are very complex computers, so automakers are forced to look for a common supplier,” says Mr. Harley. “Everyone is sharing the same airbag supplier, the same brake-lining supplier, the same battery supplier.”

Honda is one of Takata’s biggest customers and has been most heavily affected, having recalled at least 10 million cars. Along with other carmakers, the company has also been accused of having known about the defects for years, though it denies that claim. Takata also is accused of having known about the airbag defect since at least 2004 and for having destroyed test results that first identified the problem.

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