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 Takata, which counts Honda as its biggest air bag customer, was
fined $70 million by the leading U.S. auto safety regulator on
Tuesday. Shares in the Japanese auto parts firm slumped by as much
as a fifth in Tokyo on Wednesday.
Regulators have linked eight deaths - all in Honda cars - to the
Takata inflators, which use ammonium nitrate and can explode with
too much force, spraying metal fragments inside vehicles.
The fine adds to a growing list of potential bills Takata could
face. To date, automakers have primarily borne the cost of
'investigative' or voluntary recalls as the root cause of the
inflator defect hasn't yet been found. If recalls become official,
the cost could switch to Takata.
Having to pay around $100 to fix each of the many millions of cars
would cost Takata more than its current market value of around $820
million. Around 40 million cars have been unofficially recalled
worldwide since 2008 over Takata air bag inflators.
Along with the fine, the U.S. National Highway Traffic Safety
Administration (NHTSA) ordered Takata to stop using the potentially
dangerous propellant in its products.
 "DEEPLY TROUBLED"
In a harshly worded statement, Honda said it would no longer use
Takata's inflators in front-seat air bags, saying it was "deeply
troubled" by evidence suggesting Takata "misrepresented and
manipulated test data for certain air bag inflators".
Honda makes up around 10 percent of Takata's global sales, and is
its biggest customer for air bags, which account for 38 percent of
the supplier's revenue.
The air bag scandal dominated Honda's quarterly results presentation
in Tokyo on Wednesday, with the company saying that quality-related
issues, including air bag recalls, accounted for 1.9 percent of
second-quarter revenue, almost double the amount since 2013.
Honda's move highlights its impatience with Takata, and raises fresh
uncertainty over the supplier's prospects. Takata already faces
criminal investigations and lawsuits in the United States.
Honda Executive Vice President Tetsuo Iwamura declined to comment on
possible legal action against Takata, or the future of the firms'
relationship. "Once we determine an official cause of the defect, we
plan to discuss issues of responsibility (with Takata)," he said.
WILL OTHERS FOLLOW HONDA?
Honda did not specify what alternatives it would use, but it has
been buying more air bag inflators from Takata rivals including
Autoliv, TRW Automotive Inc and Daicel Corp.
"Honda has taken a significant hit from this," said Christopher
Richter, senior analyst at consultants CLSA. "If the maker can't
figure out what the root cause is, can they afford the risk of
continuing to use them as a supplier? For Honda, that's a no," he
added.
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Among other leading Japanese automakers, Toyota Motor Corp said it
would take further action on air bag inflator issues as necessary.
It has previously said it was testing rival air bag inflators.
Nissan Motor Co said it would defer to NHTSA on actions related to
Takata, but noted it was "surprised and disappointed" with the
company's conduct.
"Because they make their own inflators, Takata earns high margins on
its air bags. If more automakers use (rival) inflators, Takata's
profit could suffer even more than sales," said Koji Endo, auto
analyst at Advanced Research Japan.
"Other companies see the risk of using Takata inflators so they will
likely follow Honda and avoid using them."
TAKATA SAYS WILL COMPLY
In its statement, NHTSA accused Takata of providing "selective,
incomplete or inaccurate data" from 2009. The regulator also said it
could demand an additional $130 million fine if Takata does not
comply, or new violations are found.
Takata said it would phase out ammonium nitrate in all its inflators
by end-2018, even though it had not yet determined the root of the
problem.
"We still think our product is safe, but we realise there are many
concerns from consumer, automakers and U.S. regulators," Takata
chief Shigehisa Takada told reporters.
Takata will pay the $70 million fine in six instalments through
October 2020.
Experts say the ammonium nitrate used as a propellant in the
inflators could become unstable after being exposed to high humidity
over a period of time. Some have suggested that auto design,
including how well sealed passenger compartments are against
humidity, could also be a factor.
Takata shares closed down 13.4 percent at 1,189 yen, their lowest
close in nearly a year.
(Reporting by Naomi Tajitsu and David Morgan, with additional
reporting by Maki Shiraki and Chang-Ran Kim in TOKYO, and Bernie
Woodall and Paul Lienert in DETROIT; Editing by Ian Geoghegan)
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