Takata Shares Fall After Agreement to Expand U.S. Air-Bag Recall

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Takata Reaches Agreement, What's Next?

Air-bag maker Takata Corp. fell in Tokyo trading after agreeing to the largest automotive recall in U.S. history, as investigators continue to search for the root cause of a defect that has killed at least six people.

Takata dropped as much as 10 percent, the biggest intraday decline since Nov. 10, to 1,355 yen and traded at 1,358 yen as of 9:12 a.m. It was the largest decline among companies in Japan’s benchmark Topix index.

The company’s U.S. recalls almost doubled to cover about 34 million vehicles under a consent order announced Tuesday by the National Highway Traffic Safety Administration. Tokyo-based Takata also agreed to submit air-bag parts to the U.S. government for testing. With vehicles from 11 different automakers and a shortage of repair parts, it could take years for all the cars to be made safe, said Mark Rosekind, the head of the U.S. regulator.

“As far as we know, this is the largest recall in auto history,” Rosekind said at a news conference in Washington. “Others are doing research and suggest that it could be one of the largest if not the largest of all of consumer recalls.”

The agreement offers a way for Takata to resolve a global auto-safety crisis that made it a target for lawsuits and hurt the company’s standing with the automakers it supplies.

“We are pleased to have reached this agreement with NHTSA, which presents a clear path forward to advancing safety and restoring the trust of automakers and the driving public,” Takata Chief Executive Officer Shigehisa Takada said in a statement.

No Guarantees

Asked whether Takata has agreed to penalties, Rosekind said more than $1 million in fines have accumulated so far, and more could come depending on the continuing investigation.

“They are suspended right now until we see what the going forward plan is,” Rosekind said.

The case involves air-bag inflators that may have been degraded by moisture, causing them to deploy with too much force in a crash, breaking apart and sending shards of metal and plastic into the passenger compartment of vehicles.

As part of the consent order, Takata released four defect reports, spelling out safety hazards on various sets of vehicles. The company gives different estimates on how long replacement inflators may last in different kinds of climates, including the high-humidity states that were the focus of the early recalls.

Complex Coordination

NHTSA couldn’t provide a precise timetable on when repairs would be complete because of the complexity of coordinating with so many automakers. Because the root cause of the defect still isn’t known, it’s uncertain that replacement air bags will last the entire life of the vehicles and it’s possible consumers will need a second repair in several years, Rosekind said.

“We know that the ones that are going in are safer,” Rosekind said. “The concern is, are they safe over the long term? That has yet to be determined.”

Older vehicles and those in high humidity states would get the highest priority in rolling out repairs, Takata said in its statement.

Senator Richard Blumenthal, a a member of a Senate panel that governs transportation policy, has been pushing for a criminal investigation into Takata’s handling of the recalls.

“Takata should have been much more aggressive before now in protecting passengers through a national recall,” said Blumenthal, a Connecticut Democrat. “In the meantime the Department of Justice should be taking appropriate action to investigate and impose penalties.”

Carmaker Repairs

NHTSA has been pressuring Honda Motor Co., Nissan Motor Co. and at least eight other automakers affected by the recalls to speed the repair process and work with other air-bag suppliers to obtain parts. The agency also has demanded that Takata turn over more documents and data from the devices that have been removed from the recalled cars.

NHTSA in February began fining Takata $14,000 a day for not completely answering questions about air-bag inflater production and company efforts to investigate the explosions. It said at the time that most of the 2.4 million pages of documents the company had produced didn’t actually relate to the agency’s specific inquiries.

The consent order puts NHTSA’s relationship with Takata on a new footing. While the potential for more fines is there as the formal investigation continues, the company and the regulator are now cooperating on testing, evaluating potential fixes, and coordinating repairs with automakers.

Chemical Reactions

Modern air bags, credited by NHTSA with saving more than 2,000 lives per year in the U.S., rely on chemical reactions to safely inflate in milliseconds when sensors detect a crash. Takata’s trouble has been linked by safety advocates and victims’ lawyers to the company’s choice of chemical propellant, a type of ammonium nitrate that can be rendered unstable by high humidity and moisture.

In a properly operating device, gas created by an electrical charge is released through holes in a metal canister to inflate the air bag. If the chemical propellant tablets are made improperly or have degraded because of moisture, they vaporize with too much pressure, potentially resulting in a burst canister that hurls metal and plastic shards.

“All of us have to do fact-checking to make sure they’re getting every vehicle with ammonium nitrate-based inflators, because they’re subject to deterioration over time,” Dean said.

One of the main disputes between Takata and NHTSA had been over whether to initiate a national recall for some drivers’ side air bags. The company had said the defect was tied to high humidity, and it supported recalls limited to southern U.S. states with tropical weather. Today’s agreement makes all of the air-bag recalls national.

In addition to Honda and Nissan, Takata’s other affected customers in the U.S. market are units of Fiat Chrysler Automobiles NV, Toyota Motor Corp., Bayerische Motoren Werke AG, Mazda Motor Corp., Ford Motor Co., General Motors Co., Fuji Heavy Industries Ltd.’s Subaru and Mitsubishi Motors Corp.

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