Takata to Pay $1 Billion, Plead Guilty in U.S. Air Bag Probe

  • Three executives indicted for deceiving regulators, carmakers
  • Company’s exploding air bags linked to 11 deaths in U.S.

Takata Corp. admitted to hiding the deadly risks of its exploding air bags for about 15 years in an agreement to pay U.S. regulators, consumers and car manufacturers $1 billion in penalties. The faulty air bags have been linked to at least 17 deaths worldwide.

The Tokyo-based manufacturer also agreed to plead guilty to one criminal charge. The settlement requires approval of a U.S. judge.

Formerly, the second largest supplier of air bags in the world, Takata has had difficulty coping with the biggest product recall in history, which is expected to cover more than 100 million air bags. Putting the criminal investigation behind it should help the struggling car parts maker find a buyer. A sale may be announced by March after due diligence had to be extended in part because of the difficulty in calculating the potential liabilities, people with knowledge of the talks said last month.

The $1 billion payment includes $25 million to the U.S. and $975 million to compensate carmakers and people who were injured, according to court papers made public Friday. While the criminal fine is due within a month, the company doesn’t have to pay the restitution until it’s sold because it can’t afford to pay now.

Open season on Car Companies: QuickTake

Separately, U.S. prosecutors charged three former Takata executives for their alleged roles in hiding the risks since 2000. The three -- Hideo Nakajima, Tsuneo Chikaraishi and Shinichi Tanaka-- are Japanese citizens and aren’t in U.S. custody. The U.S. has an extradition agreement with Japan, but it’s not automatic.

The three men charged worked at Takata until about 2015, according to court papers. None of them, or their lawyers, could be reached for comment.

According to prosecutors, the three knew the inflators had ruptured and other failures during testing, and routinely discussed fabricating test results, removing unfavorable information -- known as "XX-ing" the data -- and manipulating reports. They hid the defects and issued flawed reports so that carmakers would buy the air bags, enriching themselves and the company, prosecutors said.

“Automotive suppliers who sell products that are supposed to protect consumers from injury or death must put safety ahead of profits,” U.S. Attorney Barbara McQuade in Detroit said on Friday. “If they choose instead to engage in fraud, we will hold accountable the individuals and business entities who are responsible.”

The investigation hasn’t concluded and other people may be charged, McQuade said.

Key Milestone

The settlement is a key milestone in an ongoing process to secure investments in Takata, Shigehisa Takada, chairman and chief executive officer, said in a statement.

“Takata deeply regrets the circumstances that have led to this situation,” Takada said.

The restitution is “a drop in the bucket,” said Rebecca Lindland, an analyst with auto researcher Kelley Blue Book Co. Automakers will end up spending billions on fixing the problem, she said without making a specific estimate.

The Justice Department has been wrapping up investigations before Donald Trump’s Jan. 20 inauguration when many of the people who have been overseeing the cases step down. Two days ago, Volkswagen AG agreed to plead guilty in an emissions-cheating scandal and pay $4.3 billion in penalties. Prosecutors have charged seven people in that case, including five executives still in Germany, and one who pleaded guilty.

The two companies are the latest in the industry to come under scrutiny of U.S. prosecutors. In 2015, General Motors Co. entered into a deferred prosecution deal and agreed to pay $900 million to settle a probe into an ignition-switch flaw tied to more than 100 deaths. A year earlier, Toyota Motor Corp. agreed to pay $1.2 billion to avoid prosecution over its attempt to hide safety defects over uncontrolled acceleration.

For more on the faulty Takata air bags, click here.

Takata’s criminal settlement follows its 2015 agreement to pay a $70 million civil fine to U.S. regulators for providing selective, incomplete or inaccurate information about the air bags. That fine could rise as high as $200 million, if Takata doesn’t finish the recalls in three years, according to the National Highway Traffic Safety Administration.

There are 46 million recalled Takata air bag inflators in 29 million vehicles in the U.S., NHTSA said. More recalls are coming over the next three years, affecting as many as 69 million inflators in 42 million vehicles, the agency said.

The air bags have been used by more than a dozen automakers, including Honda, Volkswagen and GM and the recalls are scheduled through 2019.

Takata has been sued by dozens of drivers and passengers claiming shrapnel injuries from the air bags.

As part of one lawsuit, Harry Trimble, who was listed as an author of a faulty validation report to Honda, said under oath that the decisions to hide the risks weren’t cultural.

“I think this was about a complete breakdown of that entire organization to build a safe product,” he said.

He said he knew that one day there would be a knock on his door by a U.S. marshal.

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