Takata Files For Bankruptcy

Tokyo June 25, 2017; Naomi Tajitsu in Tokyo, and David Shepardson reporting for Reuters said that Japan's Takata Corp, the firm at the center of the auto industry's biggest ever product recall, will file for bankruptcy protection in Japan on Monday with liabilities of more than 1 trillion yen ($9 billion), a source said.

The decision came at a special meeting of the air-bag maker's board, public broadcaster NHK said. The Nikkei business daily also reported the decision to file in Japan, without citing its sources.

Takata's U.S. arm filed Chapter 11 bankruptcy in Delaware with liabilities of $10 billion to $50 billion, a court filing showed. The firm would file a similar procedure in Japan in the coming hours, a source with knowledge of the matter told Reuters.

The filings would open the door to a financial rescue from U.S.-based auto parts supplier Key Safety Systems, which Takata has tapped as its preferred financial sponsor as it must keep churning out millions of replacement air-bag inflators.

It also faces billions in lawsuits and recall-related costs to its clients, including Honda Motor Co (7267.T), BMW (BMWG.DE), Toyota Motor Corp (7203.T) and others which have been paying recall costs to date.

Faulty air-bag inflators made by the 84-year-old Japanese company have been linked to at least 17 deaths and more than 180 injuries around the world. The ammonium nitrate compound used in the airbags can become volatile with age and prolonged exposure to heat, causing the safety devices to explode.

Global transport authorities have ordered about 100 million inflators to be recalled, a process that has dragged on for nearly a decade. Industry sources have said that recall costs could climb to about $10 billion.

Costs so far have pushed the company into the red for the past three years, and it has been forced to sell subsidiaries to pay fines and other liabilities.

As a result, the company has seen its liabilities shoot up to 397.8 billion yen as of March, while it posted 30 billion yen in net assets, down sharply from about 160 billion yen five years ago.

Industry sources say Takata would be able to complete the current global recall under bankruptcy, but could face problems if further recalls are required down the line. It has sought help from rival suppliers including Sweden's Autoliv Inc (ALV.N) to produce replacement inflators.

It also faces potential liabilities stemming from class action lawsuits in the United States, Canada and other countries.

Earlier this year, Takata pleaded guilty to a criminal charge of falsifying data on its inflator defects, agreeing to pay a $1 billion fine.

Founded as a textiles company in 1933, Takata began producing airbags in 1987 and at its peak became the world's No. 2 producer of the safety products. It also produces one-third of all seatbelts used in vehicles sold globally, along with childseats, steering wheel systems and other components.

CEO and Chairman Shigehisa Takada, the bookish grandson of the company's founder, has been criticised for his handling of the recall crisis. He has promised to resign after a new management team takes over.

(Reporting by Naomi Tajitsu in Tokyo, Additional reporting by David Shepardson on Washington D.C.; Editing by William Mallard and Stephen Coates)

Comments From Cox Automotive:

On Monday morning Japan Time, airbag maker Takata filed for bankruptcy protection in the United States and confirmed plans to sell many of its assets to Michigan-based Key Safety Systems. This expected action marks a new chapter in the story of the largest automotive recall in history.

Please find below commentary from Kelley Blue Book and Autotrader. If you would like to speak to any of our experts on this or any other topic, please let us know and we’d be happy to help. Thank you!

Karl Brauer, executive publisher for Autotrader & Kelley Blue Book
“This will be a long process under the best of circumstances, and Takata going bankrupt, though not surprising, only adds to a potential increase in the time it takes to replace tens of millions of airbags. It’s likely every automaker involved in this recall will have to subsidize the process because the value of Takata’s assets isn’t enough to cover the costs of this recall. There are still far more questions than answers on this topic.”

Michelle Krebs, executive analyst for Autotrader:
“Owners of cars with recalled Takata airbags should be assured, even though Takata has filed for bankruptcy, the manufacturer of their vehicles ultimately is responsible for providing replacement airbags. Owners need to contact their dealer for free repairs. The replacement airbags may not be immediately available, but they should get their name on a list for when they become available.”