Takata Faces `Titanic Hitting Iceberg' Moment With Recalls

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Is Takata Facing a 'Titanic Hitting Iceberg' Moment?
  • Charges led forecast to swing from profit to $121 million loss
  • Company was said to seek sponsors before latest U.S. order

Takata Corp. is struggling to get ahead of its air-bag recall crisis, with the latest full-year financial forecasts failing to take into account the U.S. regulator ordering a near-doubling in number of devices to be replaced.

The embattled Japanese supplier chalked up its latest forecast -- for a 13 billion yen ($121 million) annual loss for the year ended in March -- to charges it’s booking for recall costs and settlements with consumers injured by its rupture-prone air bags. Those 20.1 billion yen in provisions were announced days before a U.S. regulator’s order that may add 35 million to 40 million devices to the recall list.

Also unaccounted for are the demands Takata may face from automakers that have shouldered most of the financial burden of the biggest safety crisis in the industry’s history. Mazda Motor Corp. -- one of the relatively smaller carmakers affected by the air-bag recalls -- booked twice as big a charge as Takata last fiscal year. The supplier also still faces class-action lawsuits in the U.S. for which it’s been unable to estimate the financial toll.

“Takata’s recall crisis is like the Titanic hitting the iceberg,” Takeshi Miyao, an analyst with Tokyo-based market researcher Carnorama, said by phone. “You don’t realize the enormity until you see the impact from it.”

Net Loss

A representative for Tokyo-based Takata declined to comment before the scheduled release of results on May 11. The net loss the air bag supplier forecast in preliminary results filed on Monday compared with an earlier projection for a 5 billion yen profit. The company posted a loss of 29.6 billion yen a year earlier.

Takata’s shares fell 5.9 percent as of 9:34 a.m. in Tokyo trading. The benchmark Topix Index advanced 0.2 percent. 

Takata inflators that can deploy too forcefully, rupture and spray plastic and metal shards at vehicle occupants have killed at least 13 motorists in the U.S. and Malaysia and forced auto manufacturers led by Honda Motor Co. and Toyota Motor Corp. to recall more than 60 million air bags. 

The total may rise to 118.5 million worldwide, as markets including Japan follow last week’s latest order by the National Highway Traffic Safety Administration, Takaki Nakanishi, a Tokyo-based analyst for Jefferies Group LLC, wrote in a May 5 report. An expansion of that magnitude may cost an additional 665.4 billion yen, according to Nakanishi, who was ranked as the top Japan auto analyst by Institutional Investor from 2003 to 2009 and again in 2013.

Moisture’s Role

A researcher hired by a coalition of automakers said in February that moisture seeping into Takata’s inflators was determined to be the reason the air bags may rupture. NHTSA’s order last week covered all air bag inflators that lack a moisture-absorbing desiccant, potentially bringing the total number that will be replaced in the country to 69 million.

Several other investigations are still under way, and difficulties determining root cause have held back carmakers and the supplier from deciding how they’ll divide costs. 

The recalls are putting a strain on Takata’s balance sheet. The Japanese supplier has begun to seek financial sponsors that would replenish its capital and allow it to emerge as a new company, a person familiar with the matter said in April.

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