Things appear to be getting worse by the day for embattled Japanese supplier Takata Corp., the company that produced faulty airbag inflators linked to at least eight deaths and 98 injuries.
The company began the week by accepting a consent agreement with the National Highway Traffic Safety Administration that included a $70 million fine. It has since watched its stock go into a tailspin as a steady stream of customers has headed for the door.
Now, Toyota has joined the exodus just as Takata announces it lose 5.6 billion yen, or $45.8 million for the first half of its fiscal year – with analysts predicting the company’s financial situation is likely only to grow worse.
Takata has been one of the rare automotive suppliers to find its name routinely in the news – unfortunately for the Japanese company, that’s because of a problem with airbag inflators that can malfunction during a crash, in the process spewing shrapnel into the passenger compartment. So far, at least eight deaths have been linked to the issue.
It has taken several years for Takata and its customers to fully address the breadth of the problem – in part because it was not quite clear what was causing the airbag malfunctions. Initially, Takata claimed the issue was largely limited to vehicles operated in high-humidity areas like Southern California. But even after reports surfaced of malfunctions elsewhere, the supplier resisted a broader recall.
A frustrated NHTSA earlier this year ordered a dozen carmakers to repair nearly 20 million vehicles sold in the U.S. to address the problem. Takata initially resisted, ultimately backing down after a testy hearing on Capitol Hill over the summer.
(NHTSA hits Takata with $70 mil fine; could add another $130 mil. Click Here for the full story.)
But the Japanese firm has been slow to come up with replacement inflators, a key reason why, as of mid-October less than a quarter of the vehicles on the recall list had been fixed, according to government data.
Takata’s customers have been turning to its competitors for help, including airbag suppliers Autoliv, Daicel and ZF TRW, which have stepped in to provide replacements for such automakers as Toyota.
And now, a number of those makers plan to switch for good. Honda was the first to formally break its long-standing ties, on Tuesday issuing a statement that said it “expects its suppliers to act with integrity at all times, and we are deeply troubled by this apparent behavior by one of our suppliers.”
Mitsubishi followed Honda’s lead, Mazda next saying it was likely to find a replacement supplier. On Friday morning, Toyota President Akio Toyoda said his company would also stop using Takata airbag inflator powered by explosive ammonium nitrate, but would not offer other details.
That leaves uncertain whether Toyota will stay with Takata if the supplier finds a replacement chemical – something it has agreed to do as part of the consent agreement with NHTSA.
The defections likely couldn’t come at a worse time, investors already making their own exit plans. Takata stock has plunged 40% since just the beginning of the week, including a 6.2% drop on Friday.
(Investors have also been abandoning embattled Volkswagen. Click Here for more.)
The company originally had projected a 7.5 billion yen, or $62 million, profit for the fiscal first half. It is still holding to a sales forecast for the full year ending March 31, 2016 of 720 billion yen, or $5.9 billion, and may make that because the newly announced defections aren’t likely to be felt for another year or more.
But they still bode ominously for the supplier’s future. Airbags account for about a third of Takata’s total sales, the company also producing parts such as seatbelts and steering wheels. But it has had other problems in recent years and saw several executives go to jail as a result of an industry price fixing scheme targeted by the U.S. Justice Department.
Meanwhile, NHTSA could yet expand the Takata recall. It is looking into several reports that suggest side impact airbags on some new vehicles could also be misfiring. Until now, the issue was limited to frontal airbags in older models.
Some analysts are warning that Takata could be forced into bankruptcy if its financial situation continues to worsen.
(Honda earnings trimmed by Takata trouble. Click Here for the story.)