Takata Forecasts Record $235 Million Loss on Air-Bag Recall

Takata Corp. (7312), the Japanese maker of faulty air bags causing millions of recalled vehicles this year, forecast a record annual loss on the call backs.

The net loss will probably be 24 billion yen ($235 million), the Tokyo-based company said today in a statement. That compares with its previous forecast for 16 billion yen profit. It booked a 45 billion yen one-time charge in the first fiscal quarter on the recalls.

The U.S. National Highway Traffic Safety Administration and Takata are investigating whether high humidity played a role in air-bag ruptures reported mostly in Florida, Puerto Rico and other jurisdictions with above-average moisture. Air-bag ruptures were among the faults with Takata products that caused carmakers to call back 6.47 million units globally this year, based on estimates in a July 8 report by Shintaro Niimura, an analyst at Nomura Holdings Inc.

“They are going to survive,” Scott Upham, president of Valient Automotive Market Research in Rochester, New York, said in a phone interview. “They will have to go through a period where they are contrite and showing they’re doing everything to make things right.”

Nissan and Honda, which announced recalls last month of about 3 million vehicles globally, are planning to recoup the costs from Takata, the carmakers’ executives said last month when reporting first-quarter earnings.

Takata in July set up a division directly overseen by the company’s president Stefan Stocker to ensure product quality, according to Hitoshi Sano, head of investor relations.

“We will try to improve quality to regain the trust of carmakers as soon as possible so that this won’t have an impact on our long-term business,” Sano said by telephone today.

Customers Waver

Honda Executive Vice President Tetsuo Iwamura said last month the carmaker is considering whether to continue using Takata air bags.

“A recall that has ballooned to this big will definitely leave a bad impression for carmakers,” said Masahiro Akita, an analyst with Credit Suisse Group AG. “It may not be easy for them to cut all the ties with a company that holds 20 percent of global share, but it’s also hard to imagine there’s going to be no impact on future business.”

This year’s recall followed a 3 million car call back by Toyota, Honda and Nissan last year, as Takata found it didn’t include all vehicles affected by the defective air bag inflators.

Net loss was 21.1 billion yen in the year ended March 2013, when it booked 30 billion yen in recall-related expenses.

After the recall last year, Takata replaced its president Shigehisa Takada, grandson of the company’s founder, with Swiss national Stocker, the first foreigner in the post. Takada, 48, became the company’s chairman and CEO.

Widening Scrutiny

Scrutiny of potential safety flaws in the auto industry has been increasing, with automakers in the first six months of 2014 already recalling more vehicles in the U.S. than in any other full year on record. General Motors Co., which accounts for about two-thirds of that total, is under investigation for taking years to recall millions of vehicles for faulty ignition switches.

Takata isn’t unfamiliar with large recalls. Several automakers called back almost 9 million vehicles in 1995 to replace faulty seat belts made by the parts maker -- a record for the auto industry at the time.

Honda, the biggest customer of Takata, has called back a total of 6 million vehicles for problems with Takata air bags in nine recalls since 2008, based on figures from the carmaker. Two people died in 2009 in accidents related to the defect, it said.

To contact the reporter on this story: Ma Jie in Tokyo at jma124@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net Subramaniam Sharma

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