’s admission that some of its air-bag inflaters are defective could lead to additional recall costs that could hit billions of dollars, analysts say, posing long-term financial uncertainty for one of the world’s biggest automotive safety parts suppliers.
Shares in the Japanese company fell 10% Wednesday in Tokyo, after being down as much as 12% in the morning, following the U.S. National Highway Traffic Safety Administration’s announcement Tuesday that a total of 34 million vehicles in the U.S. are now being recalled over explosive air bag inflaters made by Takata, the biggest automotive recall in U.S. history.
That total represents almost 14% of the 250 million vehicles on U.S. roads. The problem is linked to six deaths and more than 100 injuries.
Takata now could face recall-related charges of $4 billion to $5 billion, up from an earlier estimate of $1.6 billion, said Valient Market Research Chief Executive Scott Upham, who has worked at Takata. These include costs related to manufacturing replacement parts and paying back auto makers for a portion of other costs, such as the time dealers spend fixing vehicles.
In booking any charges, Takata is likely to spread them out over several years to stay afloat, Mr. Upham said.
Takata spokesman Hideyuki Matsumoto said the company is unable to estimate any additional charges at the moment. “The amount depends on future discussions with auto makers. We can’t make reasonable estimates at the moment,” Mr. Matsumoto said.
The reason the future cost to Takata remains unclear is that the company’s approach to recalls of its air bags, which started in 2008, can largely be divided into two phases.
For the first phase, through about the middle of 2014, Takata had acknowledged its air bags were defective due to manufacturing problems. That has made accounting of the recall costs clear between Takata and auto makers, though these details aren’t made public.
But for most of the recalls since then, Takata until Tuesday hadn’t admitted to defects, saying instead that the root cause was unclear. This left auto makers to shoulder much of the recall costs, making Takata’s own recall-related charges smaller than some analyst estimates.
Takata’s admission to defects on Tuesday sets the stage for discussions with auto makers on how to split costs for the more recent recalls. But how much Takata will end up paying is still unclear, partly because the root cause of the problem is yet to be identified.
Takata also said the testing specifications it was given by auto makers to make air bag inflaters may not have been sufficient to spot the possibility of long-term problems, suggesting the auto companies may bear some responsibility for the problems as well.
The recalls affect vehicles made by a wide range of companies, from Honda Motor Co.
and Toyota Motor Corp.
to Fiat Chrysler Automobiles
and BMW AG
. The companies have cooperated with investigators.
Takata, which also makes seat belts and child seats, has already booked full-year net losses twice over the last three years. During that period, it has posted at least $700 million in recall-related charges.
Takata this month said it expected to return to profit this financial year and forecast around ¥7 billion ($57.9 million) in recall-associated expenses, mainly payments to lawyers and consultants.
The recall crisis is likely to last for years to come. Class-action lawsuits have been filed against Takata in the U.S. and Canada, the company says, while the probes on why air bags are exploding are still likely to take months, if not longer. Fixing the faulty inflaters will likely to drag on for years because of time required to manufacture tens of millions of replacement parts.
As of end-March, Takata’s cash and equivalents was ¥75.7 billion, down from ¥105.4 billion the previous year. Capital surplus was at ¥42.3 billion.
“It’s not going to run out of these immediately but the cash flow is very tight and it may need bank support,” said Koji Endo, an analyst at Advanced Research Japan.
At the heart of the recalls are Takata-made inflaters with metal casings containing explosive propellants that generate gas to fill up the air bag.
Takata said in filings Tuesday that it believes years of persistent exposure to high absolute humidity and potentially other factors can result in alterations to propellants that could lead to excessive force when they ignite, prompting the metal inflater casing to explode and shoot out shards.
Write to Yoko Kubota at [email protected]