Homepage / Asia / Takata's bankruptcy filing will leave others picking up the bill, analysts say
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Asia

Takata's bankruptcy filing will leave others picking up the bill, analysts say

Filing for bankruptcy protection may not be enough to help troubled Japanese auto-parts maker Takata untangle itself from what is considered one of the biggest recalls in automotive history, analysts told CNBC.

The Japanese airbag manufacturer on Monday filed for bankruptcy protection in Japan and the United States. U.S.-headquartered auto parts supplier Key Safety Systems (KSS) said it reached an agreement with Takata to purchase most of its global assets and operations for $1.588 billion.

Takata’s faulty airbags have resulted in at least 17 deaths and more than 180 injuries globally over the years, according to Reuters. This led to global transport authorities ordering about 100 million inflators to be recalled and Reuters said industry sources estimated costs for the recall could climb to about $10 billion. Takata also faces numerous lawsuits in the United States, Canada and other countries, said Reuters.

The problems developed into a scandal after it emerged that Takada allegedly hid the issues for years before recalling the dangerous airbags.

“You’re talking about tens of millions of bags and they are still responsible for doing that and carrying out those replacements even in a bankruptcy filing,” Karl Brauer, executive publisher of Autotrader and Kelley Blue Book, told CNBC’s “The Rundown on Monday, referring to the ongoing recall and replacement process.

Brauer said Takata executives were likely hoping there would be enough money from the sale of its assets to carry out the rest of the recall, but he was skeptical.

“A lot of people are suspecting that it won’t cover the total cost. They’re saying it’s going to be about $5 billion in cost to get all these airbags replaced. There’s only $2 billion worth of assets,” Brauer said. This would leave affected automakers to cover the rest of the recall and replacement costs.

Earlier this year, Takata agreed to pay $1 billion in criminal penalties stemming from its allegedly fraudulent conduct over the sales of defective airbag inflators.

At the time, it announced it would establish two restitution funds: A $125 million fund for individuals physically injured by the faulty airbags who have yet to reach a settlement with Takata, as well as a $850 million fund to shoulder the airbag recall and replacement costs incurred by affected auto manufacturers.

Janet Lewis, head of industrials research in Asia at Macquarie Capital Securities, said that for automakers, it wasn’t just about paying for the recall.

They also need to ensure Takata keeps producing the replacement airbags, she told CNBC’s “Squawk Box” on Monday.

“The fact that they appear to have reached an agreement to sell the assets to KSS should enable this to continue,” she said. “The (automakers) have been expecting that … Takata was not going to recover sufficiently to pay them back.”

“They have provisioned already for the losses related to the recalls,” Lewis added.

Honda said in a statement on Monday that it has not reached any agreements with Takata about how much of the recall cost it would bear, but it would continue to seek to recover the costs from the troubled parts-maker.

But it added that it expected it will become difficult to recover the majority of the claims.

Lewis said that the lawsuits against Takata created further uncertainty.

“Because we know particularly in the case of U.S. court system, you don’t always have a very good picture of what kind of liability could result from judgments there,” she said. “But I think (it) definitely looks like shareholders are not going to get anything. And I suspect that there will be other creditors that end up not getting paid either.”

Meanwhile, Reuters reported Takata chairman and CEO Shigehisa Takada said the top management will step down once the transfer to KSS is completed and it was likely that the Takada family will stop being company shareholders in the future.

The Tokyo Stock Exchange also announced it will de-list Takata shares from July 27.

“For a while there was a hope that they would be able to get Japanese companies — in particular, the automakers —to invest in them to keep them going as a going concern,” said Lewis. “But I believe there was too much concern on the part of the (automakers) about future liabilities and that potentially representing a black hole.”

Both analysts expected carmakers will continue to shift toward other suppliers, integrating them into their supply chain through newer models or upgrading existing ones.

Brauer added it will probably take two to four years to replace all of the affected airbags and it’s likely to be an expensive process, requiring more money than the bankruptcy will supply.

“I think you’re going to see Takata kind of fade away and probably won’t hear that name very much anymore,” he said. “You can’t have the largest recall in the history of the automobile that takes years to take care of, and not have stigma attached to your name.”

— Reuters contributed to this report.

Source: cnbc china
Takata's bankruptcy filing will leave others picking up the bill, analysts say

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