Car Costs to Rise as Deadly Flaws Lead to Stricter Safety

Auto-parts suppliers are feeling the pressure as car companies move to raise quality standards after a record year for U.S. vehicle recalls in 2014.

In Japan, parts makers that sell to automakers worldwide say they’re taking costly steps to meet higher international quality standards, introducing extra safety features in their component designs, and buying more sophisticated inspection equipment. In the wake of massive recalls for deadly flaws such as General Motors Co.’s defective ignition switches and Takata Corp. air bags that spewed metal shards at motorists, the suppliers say they have little choice in the matter.

“It’s expensive,” said Shigenobu Nagamori, the president of Nidec Corp., a Kyoto-based maker of small precision motors that’s seeking to expand its business with carmakers. “But otherwise, if we’re forced to compensate for losses later on, we’ll all be finished.”

Carmakers recalled more than 60 million vehicles in the U.S. last year, double the previous record set in 2004. As the National Highway Traffic Safety Administration pledges to step up scrutiny this year, the renewed focus on quality will add to manufacturing costs -- which in turn may lead to consumers paying more for cars.

“The risk of recalls will get even bigger in the future as cars use more and more electrical components and become more complicated,” said Satoru Takada, an auto analyst at Toward the Infinite World Inc. “The costs auto-parts makers pay to ensure safety will probably continue to rise.”

Air-Bag Deaths

Honda, Japan’s third-largest automaker, has said it will scrutinize development and asked for support from suppliers after it recalled more than 13 million vehicles since 2008 due to Takata air bag flaws. Tokyo-based Takata and carmakers are investigating the root cause of the defects, which have been blamed for five deaths in the U.S. and Malaysia.

Takata expects a 25 billion yen ($212 million) loss this fiscal year after booking a 47.6 billion yen charge in the first half for product quality provisions. The company said in November it’s difficult to estimate the amount of damage claims it has received in the U.S.

Takata spokesman Hideyuki Matsumoto said the company regards safety and quality as its “No. 1 priority” and will continue to invest money to develop new technology and raise quality standards.

Honda Fines

Honda agreed this month to pay a record $70 million in civil fines for failing to tell the U.S. government about more than 1,700 deaths and injuries potentially linked to flaws in its vehicles. Also this month, Takanobu Ito, the company’s president, spoke about Honda’s quality issues in his address at an annual gathering in Tokyo that’s traditionally an awards gala to honor suppliers.

ZF Japan Co. President Richard Kracklauer, who attended, said it’s clear companies like his will need to work even harder to ensure high quality standards “if we are to continue business with Honda.”

Fumio Fujimori, president of Aisin Seiki Co., expects parts makers including his own company to spend more time and money pursuing higher product safety standards, which may in turn lead to higher product prices, he said in an interview this month. The company cut its profit forecast in October, citing mounting expenses for upgrading equipment to check quality.

Aisin Seiki, which is 35 percent owned by the Toyota group and makes parts ranging from transmissions to power door locks, will follow stricter designs required by an international standard known as ISO 26262, Fujimori said. It’s working to improve the traceability of products so that if a quality problem arises, the company can quickly analyze it and find the cause.

‘Mandatory’ Standards

Complying with ISO standards used to be a matter of “honor” for Japanese companies, said Fujimori, whose largest customer after Toyota Motor Corp. is Volkswagen AG. Now, he said, it’s become “almost mandatory” for auto-parts makers as car manufacturers won’t buy from those that don’t.

Jtekt Corp., a maker of electric power-steering systems, will also implement the “fail-safe” systems required by ISO 26262 to ensure safety, even as such designs drive up costs, President Tetsuo Agata said in an interview in November. The Osaka-based company counts GM, Ford Motor Co. and Hyundai Motor Co. among its largest overseas customers.

“It’s about human life, so we really want to make sure to fully comply,” Agata said. “If we make mistakes in this area, it could easily cost us our position in the industry.”

Takata's shares dropped 3.5 percent, extending a five-day losing streak. Nidec’s shares fell 1.6 percent and Jtekt declined 2.3 percent in Tokyo trading on Friday. The benchmark Topix index slid 0.9 percent.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE