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How Exploding Air Bags Infected U.S. Highways

Edward Niedermeyer, an auto-industry analyst, is the co-founder of Daily Kanban and the former editor of the blog The Truth About Cars.
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The global auto industry had plenty to worry about in 2014 as it navigated shifting technological and economic tides, the usual brutal forces of competition and consolidation, and a host of other threats: volatile fuel prices, the technological arms race toward battery- and hydrogen-electric vehicles, maturing developed markets, the rise of mobility-sharing apps such as Uber and the specter of self-driving cars. But an even greater horror stalked the auto industry this year, leaving a trail of dead customers, baffled executives and livid regulators: Takata's exploding air bags.

The Takata scandal has largely flown under the public's radar, with GM's defective ignition switches dominating headlines in the U.S. But while GM's problems were the long-term consequence of well-documented dysfunction in the company's culture and its relationship with former in-house parts supplier Delphi, the Takata scandal has touched nearly every automaker in the business.

The industry's broad exposure to Takata's defective air bags -- their inflators can explode when the air bags are deployed in high temperatures or humidity, sending shrapnel flying -- speaks to the deep cost pressures that all automakers face. More than 16 million vehicles from 11 automakers have been recalled; only by selling parts that customers never see to brands as diverse as Honda and BMW can suppliers such as Takata generate the high volume they need to set competitive prices.

Though Takata worked with individual automakers to investigate potential problems, it did not appear to make the connection to the chemical propellants used to deploy its air bags. As a result, some premium car brands are left with a dirty little secret hidden in plain sight: Under the steering wheel of many upscale chariots lurks the same defective air bag found in more prosaically branded cars.

The push to expand in low-cost manufacturing areas also had a hand in allowing the defects to continue. Japan-based Takata warned investors in June that it had allowed "too much leeway" during rapid overseas growth, and it is now working to clamp down on quality controls at its more than 100 suppliers. The Mexican government ordered 171 health and safety measures after an investigation of the Takata plant at the heart of the safety scandal, as the country seeks to maintain its reputation for quality amid a boom in new production investments. The warning signs for investors in new Mexican plants are clear: Too much cost-cutting and rapid expansion can have disastrous results.

Amid these growing safety concerns in an increasingly global industry, regulators are finding themselves outgunned. Their focus on the automakers -- which outsource more production and development work with every product cycle -- makes them totally unequipped to deal with the industry's complicated network of supplier relations.

David Friedman, the National Highway Traffic Safety Administration's deputy administrator, warned automakers that the agency could "force" a recall of all cars with Takata air bags, despite the fact that Takata can't make replacements fast enough to keep up with a full recall. Meanwhile, other suppliers (doubtless heartbroken at the prospect of Takata losing future business over the mess) insist they are unable to rescue their flummoxed competitor anytime soon.

The NHTSA can huff and puff all it wants, but Takata can only dig itself out of its hole so fast: The supplier estimates that building all the necessary replacement inflators for the U.S. alone would take two years. While the triage goes on, NHTSA's insistence on national recalls only takes away from the focus on repairing the most vulnerable vehicles: those in warm, humid states.

Like every good nightmare, this one refuses to end: A 2014 IHS Automotive survey of auto suppliers suggests that "intensified" cost pressures continue to eat away at the relationships between automakers and their suppliers. As cost pressures on those suppliers build relentlessly -- with automakers seeking annual cost reductions of as much as 10 percent, according to IHS -- it seems all too likely that there will be more ugly reminders that every automotive manufacturer must balance those costs against the possible loss of human lives. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Edward Niedermeyer at edward.niedermeyer@gmail.com

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net