For two years, the auto industry has debated whether Takata Corp. -- the world's second-largest producer of airbag inflators -- is too big to fail.
The inflator business, after all, requires sophisticated r&d, no-excuses quality control and a heavy investment in propellant factories that sometimes blow up.
Now the debate is over: Takata is expendable.
Last week, the company's largest customer, Honda Motor Co., said it will not use Takata inflators for driver or passenger airbags in any future models, sending Takata's stock into a nosedive. Afterward, Mazda Motor Corp. and Toyota Motor Corp. said they won't use ammonium nitrate inflators in future models, although they appeared to leave the door open for Takata inflators that use a different propellant.
Mitsubishi Motors Corp. and Subaru parent Fuji Heavy Industries Ltd. confirmed that they are re-evaluating Takata's airbag technology.
These and other automakers are scrambling to obtain replacement inflators to fix more than 19 million U.S. vehicles with defective Takata airbags. To help them, Takata's three biggest rivals -- Autoliv Inc., TRW Automotive and Daicel Corp. -- have expanded production. Meanwhile, they are racking up contracts not just for replacement inflators, but for future vehicles as well.
Can Takata survive this crisis?
"I had always thought they were too big to fail, but I don't think their inflator business is salvageable," said Scott Upham, principal of Valient Automotive Market Research, a Rochester, N.Y. consulting firm. "I think Takata will survive, but they'll be focused on slow-growth products like seat belts."
Last week, Takata slashed its earnings forecast for the fiscal year ending in March as it gauges the impact of the recall, though executives said it was not in financial trouble.
It's a humbling experience for Takata, a family-owned business founded in 1933 as a textile supplier for parachutes.
The company started making seat belts in the 1960s, followed by airbags in 1987, and ultimately built itself into the world's No. 2 supplier of inflators, with 22 percent of the market. But the company ran into trouble when Honda and other automakers began issuing massive recalls of vehicles with Takata airbags.
Takata is the only supplier whose inflators use ammonium nitrate, a chemical shown to degrade when exposed over time to heat and humidity. Eight deaths and more than 100 injuries have been linked to inflators that exploded when the airbags deployed, spraying shrapnel toward vehicle occupants.
Last week, the National Highway Traffic Safety Administration levied a $70 million cash fine on Takata, with $130 million in additional penalties if the company violates its consent order or is found to have violated other safety laws. Then Honda announced its plans to switch suppliers.
But even before the agency action, the dominoes were beginning to fall. On Oct. 27, Mitsubishi CEO Osamu Masuko told Automotive News that his company will buy inflators from other suppliers, although Takata will continue to assemble the airbag modules.
"There's a concern about ammonium nitrates. We don't know the root cause" of the airbag malfunctions, Masuko said.
While Mitsubishi is willing to let Takata handle final airbag assembly, Takata's inflator business appears to be nose-diving as its competitors ramp up production and reel in new sales.
Autoliv, the top global producer of inflators, is gaining market share, says CEO Jan Carlson. "We believe we are winning around half of all the frontal airbag orders," Carlson said during a Sept. 28 interview.
Takata isn't throwing in the towel. During a press conference last week in Tokyo, CEO Shigehisa Takada, grandson of the company founder, insisted that the company's main propellant is safe if manufactured and handled properly.
Said Takada: "We are confident in its safety."
Takata will have to prove that case convincingly by the end of 2019, under the consent order, or face a possible recall of all the ammonium nitrate inflators it has ever produced.
Takata has agreed to phase out its use of ammonium nitrate for replacement inflators, and to stop supplying them for any future vehicles after 2018. The company plans to keep supplying airbags -- either by making modules with inflators from other suppliers, or by offering its inflators with a different propellant.
The de facto industry standard for propellant is guanidine nitrate. Takata supplies guanidine nitrate inflators to some automakers, mostly in Europe, according to a spokeswoman. But even if it switches propellants, Takata will struggle to defend its market share because its reputation has taken such a beating. In announcing its decision to abandon Takata last week, Honda cited evidence that the company "misrepresented and manipulated" inflator test data.
That won't sit well with Takata's customers. Said Upham: "The automakers have very long memories."