Automakers out billions on Takata deal

TOKYO — Automakers around the world likely will be stuck with billions of dollars in recall losses now that airbag supplier Takata Corp. has filed for bankruptcy.

Takata's Japanese customers will feel the most pain. Honda, Toyota and Nissan combined have earmarked more than $10 billion to cover their share of the massive global recall of defective Takata airbag inflators that can explode with deadly force.

For the most part, the automakers have accounted for those mammoth expenses in their earnings. But now they say it is unlikely Takata will compensate them for the costs.

Honda, Takata's biggest customer and a major shareholder with a 1.2 percent stake in the supplier, had hoped to at least share the cost with Takata. But not anymore.

"We anticipated difficulty in claiming compensation," spokesman Kosuke Kachi said.

In all, 19 manufacturers in the U.S. have been embroiled in history's biggest automotive recall, a scandal linked to least 16 deaths and 180 injuries worldwide. The list includes General Motors, Volkswagen, Daimler, Land Rover and even Ferrari and Tesla.

The costs are likely to keep rising because the recalls are nowhere near finished.

It is difficult to pinpoint how much of the cost carmakers have absorbed and how much more they may need to pay. For competitive reasons, the companies are tight-lipped about the expenses.

In announcing Takata's bankruptcy last week, CEO Shigehisa Takada said proceeds from the company's fire sale to its U.S.-headquartered, Chinese-owned rival Key Safety Systems would be used to pay down outside debts and other obligations. But the $1.6 billion will go only so far.

In its U.S. Chapter 11 filing, Takata listed liabilities of between $10 billion and $50 billion.

Takata attorney Nobuaki Kobayashi said the total liability is unclear and the supplier is in talks with automakers to tally a worldwide cost.

Also weighing on the calculus is a slew of pending consumer lawsuits seeking damages, as well as settlements. Those include a $1 billion settlement that encompasses a criminal penalty handed down by the U.S. government after Takata pleaded guilty to wire fraud charges for systematically withholding information about its defective inflators and manipulating inflator test data.

In addition, Japanese banks that underwrote Takata as its finances foundered are also expected to take a bath. There simply is not enough money to go around.

Honda has taken charges of ¥556 billion ($5.0 billion) to cover the expense of recalling an estimated 51 million defective Takata airbag inflators worldwide.

Toyota said its claims against Takata "are at the risk of becoming uncollectable or being delayed." Toyota says it has ¥570 billion ($5.12 billion) in receivables against Takata to cover the recall of some 27 million inflators worldwide. But that amount could increase if more recalls are necessary, it warned.

Toyota could not specify the remaining impact of the recalls because the company needs more time to determine how many vehicles with the suspect inflators remain on the road in markets worldwide or are being used as replacements, spokesman Takashi Ogawa said.

Nissan Motor Co., Japan's No. 2 automaker, issued a statement saying it also is having trouble claiming reimbursement for its recall costs. "Although we have acquired the right to be reimbursed for the costs of both past and future recalls from Takata and its affiliates, following Takata's filing, it is likely that we will not be able to exercise this right in most cases," Nissan said.

Nissan has set aside ¥90 billion ($809.0 million) for potential costs. But like Toyota, it is uncertain about the total cost.

Despite their Takata-related losses, automakers perversely have little choice but to keep buying replacement inflators from the scandal-tainted supplier. They have committed to honoring the rest of the recalls. But they cannot get enough replacement inflators from alternative suppliers such as Sweden's Autoliv or Japan's Daicel. For that reason, bankrupt Takata will have to carry on producing inflators — the part of the business that Key Safety did not acquire — through March 2020.

Those replacement inflators use the same ammonium nitrate chemistry as the original inflators they are replacing, which were prone to explode with too much force after prolonged exposure to heat and humidity.

The new ones are believed to be safer than the originals for two reasons. First, they are newer and haven't been degraded by heat and humidity. And second, they are manufactured with a desiccant additive to keep them dry.

Takata has until the end of 2019 to prove to regulators the safety of the inflators. If not, the new components could be subject to a callback, setting into motion another round of recalls.