Japan-based Auto Supplier Takata Faces Bankruptcy in the Face of Major Losses After Years of Struggles

Takata makes airbags.  Or, rather, they did.  Now, they spend more time and money figuring out how to pay for a massive recall that affected tens of millions of defective air-bag inflators over the past several years. 19 car and truck manufacturers use this technology—from Toyota Motor Corp to Tesla Inc—but the defect was found to explode shrapnel and other dangerous materials upon deployment. This resulted in at least 180 injuries and 16 deaths.

Obviously, that is unacceptable; and Takata has recalled nearly 70 million of these air bag inflators in the United States (roughly 100 million worldwide).

As such, Takata has posted its third consecutive annual loss—and that does not even include the full costs of repairing those vehicles listed in the recall.  Of course, the company also suffers from a lack of talented and experienced personnel as more and more consumers share distrust—and even disgust—for the auto industry as a whole.

Bankruptcy proceedings typically involve the selling off of assets and in this case rival auto part maker Key Safety Systems has made a bid.  Indeed, the Detroit-based company will buy the majority of Takata’s assets for $1.6 billion in addition to taking over its manufacturing operations. In this case, though, Key Safety Systems will use the facilities to make not only air bags but also seat belts and other automotive safety devices.

However, Tokyo Shoko Research analyst Mitsuhiro Harada notes, “It would be hard for Key Safety Systems to put in huge amounts of money if there’s no guarantee against unexpected liabilities, after any deal. Takata is making money in non-air bag operations, so if they can drastically cut recall-related debt through bankruptcy, they can surely revive soon.”

The rest of the company will be divided and sold off as well. Some of what’s left, for example, will be folded into another entity under a new name in order to keep making these inflators (albeit, without the defect) in order to continue servicing the recall (and move forward thereafter).  After all, at the end of April, Takata had only been able to address not even a quarter of the 69 million recalled inflators in the US.

At least $1 billion from the overall sales will be used to help Takata satisfy its criminal settlement in the US for concealing known problems.

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