Autos

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

A U.S. recall of millions more vehicles fitted with some Takata air bag inflators has again triggered alarm among the Japanese supplier's equity and bond investors.

Shares Slide
Takata shares have fallen to to the lowest in almost seven years
Source: Bloomberg data

Takata will now meet with major customers later this week to gauge how receptive they might be to providing it with financial aid, Bloomberg News reported on Monday as the stock fell to the lowest in almost seven years.

But why should Honda, Takata's largest customer -- or even a European company like Volkswagen -- provide assistance at all?

It's less than two months since Honda publicly rebuked the company for providing misleading information. Surely it would be reckless to step in before the full investigation is complete?

One reason they might would be if they were unwilling to risk the short-term failure of a systemically important supplier.

The company also makes steering wheels, air bags and seatbelts for automakers including GM, Fiat, Renault, Ford, Toyota, Daimler and Suzuki, according to data compiled by Bloomberg.

Takata's Biggest Customers
Honda, VW and GM account for the biggest share of Takata's revenue
Source: Bloomberg data

In their rush to cut costs, carmakers have pushed the use of common vehicle platforms that share components. To drive sales they have built factories overseas.

Only the suppliers who have pockets deep enough to produce the required high component volumes and who are able to follow the carmakers around the globe can flourish in that system -- which has led to consolidation among suppliers.

Fewer suppliers and the use of a large number of common parts across multiple vehicles have created a problem for carmakers: a failure in one component can spread across the whole industry. 

Takata had about 22 percent of the market for air bag inflators last year, a figure that's likely to tumble as Honda, Mazda and Toyota all say they plan to stop using the company's inflators. Rivals Daicel Corp, Autoliv and TRW Automotive (acquired last year by Germany's ZF Friedrichshafen) are ramping up production of their alternatives. 

Takata said on Monday no decision has been made about whether to seek financial support. The most recent announcement didn't specify precisely how many vehicles will need to be recalled. Even so, the number of vehicles affected already exceeds 19 million in the U.S. -- more than the total number sold in the country annually. 

The Japanese supplier, majority owned by the Takada family, has lost more than 80 per cent of its market value since January 2014. The yield on the company's bonds maturing in 2021 has jumped to 8.7 percent, from 3.6 percent in early November.

Tumbling Shares
Shares of both Volkswagen and Takata have plunged amid scandals

But unlike Volkswagen -- forced to recall 11 million vehicles over the diesel emissions scandal -- Takata's resources are comparatively meagre.  The company's net assets totaled 139 billion yen ($1.2 billion) at the end of September, while cashflow in the period was a negative 13 billion yen.

The final cost of recalling all those cars with ammonium nitrate inflators is expected to run into the billions of dollars. Takata's contribution to the bill remains unclear -- but it's unlikely to be small. And then there's the risk of class-action suits on top.

It's hard to see how it's going to be anything other than painful for Takata's shareholders -- even if the company gets a helping hand in the short term.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net