Takata Faces Sharp Losses as Airbag Recall Expands

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In April, 22-year old Kylan Langlinais crashed her 2005 Honda Civic into a utility pole in Lafayette, Louisiana. The airbag, manufactured in Mexico by Takata, exploded, shooting out metal shards and cutting an artery in her neck. Two days later, a recall notice arrived at her home. Four days later, she died.

Langlinais is the seventh person to have officially been killed by faulty Takata airbags, with at least 100 others injured. Several lawsuits have been filed on behalf of the injured parties, and a class-action lawsuit is expected in the near future. With over 30 million parts from a wide range of auto makers affected by the recall, the whole ordeal will cost billions of dollars and take several years to resolve. Takata currently holds 20% of the market share in airbags, and is currently one of the only companies equipped to provide car makers with airbags in order to maintain production efficiency. Things are not looking good for the airbag giant, whose costs are rising steadily and will likely exceed $250 million. Honda alone will pay $360 million, and the company decided recently to appoint a new CEO to lead it out of the scandal.

In order to reduce production delays, Takata has been supplying airbags to U.S. car makers that may still be defective. Because the root cause of the airbags’ defects has not been discovered, the airbags being added to recalled cars could themselves develop explosive capabilities with added heat or pressure. However, the NHTSA has decided to push forward with recalls regardless; newer airbags are less likely to falter in humidity. Analysts believe that the use of ammonium nitrate as a propellant could be the cause of the deadly airbag malfunctioning—Takata allegedly began use of the chemical in the early 2000s due to its lower cost. In a June hearing with the U.S. House Energy and Commerce Committee, the manufacturer stated it would phase out the chemical and use guanidine nitrate in its place. However, because the replacement effort will take time, many newer airbags will still employ ammonium nitrate.

The defective airbags were produced at Takata’s Mexico plant, which, according to a report, may have allowed devices to be exposed to moisture, increasing the risk of combustion. Reuters reported that the factory also allowed defect rates six to eight times over the limit. Takata faces potential criminal charges over their lax safety standards.

According to Bloomberg, Honda and the NHTSA have enlisted Takata competitors to manufacture some parts for recalled cars, supplementing Takata’s contributions. By the end of the year, up to 70% of replacement airbag kits will come from competitors. Takata will run out of cash fast, unless car companies shoulder some of the financial burden. Add fines from NHTSA, legal fees, and a ruined public image – Takata may not be able to navigate out of this mess.

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