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Takata Corp Suffers from Recalls

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Recent industry news has cast a shadow of doubt over the various brands affected by failing airbag deployment systems. While the automobile manufacturers reel in from the defected parts in their products, the Japanese auto parts supplier Takata Corp has also too begun to feel the pressure of their defected parts as well. The company is now facing profits that could sink into the red which has added to profit loss twice in the last three years.

Takata Corp’s Recallstakata 2

Over the last 5 years a collection of auto manufacturers have recalled a whopping 10.5 million vehicles that needed to fix the Takata air bag systems that have been deemed by safety experts who see the air bags as harmful to drivers and occupants. The main issue has been that there is a risk of the air bags exploding and discharging shrapnel into the cabin. This issue has become one of the five biggest recalls in industry history.

Both Toyota Motors and Honda Motors are two of the main four Japanese auto makers affected most heavily by the Takata air bag recalls in recent months. The biggest issue to date is faulty air bag inflators which were made between 2000 and 2002. Honda has announced that they are expanding their recalls to another 6 models which might have been affected by the defected inflators. A Honda spokesman said that there was a massive recall of their cars in high humidity areas which may be a contributing factor to the lack of inflation.

General Motors had announced on Wednesday that an issue to cease selling about 33,000 new and used Chevrolet Cruze sedans. Models that are affected were produced between 2013 and 2014 due to an unspecified issue with Takata supplied air bags.

Affecting Takata Corp

Takata Corp is looking down the barrel at what could be as much as a 500 million dollar charge and total net loss for the year simply for the air bag recalls. The current recall is their second recall in less than three years. Other than the explosion and discharging shrapnel into the cabin of occupants, there is also widening recall of their air bag inflators. Industry creditors are not too worried about the recalls since Takata has roughly 1 billion dollars on its books as tangible cash.

Many are watching the company to see how its shareholders view the direction of the company since the latest recall of 5.2 million cars earlier this month. The biggest concern is not the cash flow backing the company but the possibility of a downturn of future orders from the supplier. Company spokesmen have voiced their concerns however believe that due to the company’s longstanding excellence as a supplier of auto parts will help manufacturers stand by their loyalty and continue to buy from Takata in the future.

Cost of the Recallstakata

Industry analysts believe that the individual cost per vehicle will cost Takata about 90 to 100 dollars in repairs which was based on the cost of replacement parts and labor costs depending on region. The 500 million dollar charge of the company is pegged to affect Takata’s profit margin from the end of June throughout next March. Takata has forecasted a 157 million dollar profit from now until March 2015. The company had only returned into the black early last year from their staggering 21.1 billion Yen net loss in 2013. Just for the record the exchange rate is $1 = 102.05 Japanese Yen.

Last year auto makers had recalled 4 million vehicles worldwide for the discharge of passenger side air bags. The company took on the equivalent of a 300 million dollar charge which cost roughly 75 dollars per vehicle to repair. The current cost of the most recent recall has still yet to be determined into a finalized number due to unforeseen factors such as more auto makers coming forth or the amount of vehicles actually impacted by the defects. There is a safety investigation due to be performed in the United States which could make the cost of repairing these defects skyrocket depending on the results of the investigation.

The shareholder’s meeting met yesterday with the results still unclear with how the company will approach or reclaim any lost business due to the series of recalls issued by the company and their partners in the auto manufacturing industry. As a parts leader in supplying both Japanese and U.S. auto makers, the company may have a lot of smoothing over to do in order to maintain healthy relationships with Honda, Toyota and General Motors. Takata’s Chief Executive Shingehisa Takada stated to the public prior to the shareholder’s meeting that the company would make concentrated efforts in improving its quality control and prevention measures from allowing a massive defect like their safety issues with the air bags from occurring again.



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