Takata’s Woes Could Create Headaches for Automakers

The financial impact from current recalls in the auto industry is being indirectly affected in one aspect by the likely bankruptcy of one of the leaders in the maker of air bags. Japan-based Takata is going to court to push forth with that bankruptcy and is being taken over by Key Safety Systems for the estimated price of $1.57 billion.

A total of 19 makers of cars and trucks are carefully watching this development, primarily because Takata must still make good on replacing roughly 100 million defective air-bag inflators that those companies used. Presently, almost half of those inflators have already been replaced in the United States and Japan.

Key Safety Systems isn’t liable for such expenses, so if Takata ends up being driven out of business because of the onerous costs, those companies must foot the remaining bill. Those costs could mean that the vehicle companies must pay out $3 billion, or 60 percent of the estimated final amount of $5 billion.

Takata’s recent history doesn’t offer a great deal of confidence that they’ll be able to extricate themselves from this financial nightmare. The company has posted annual losses in each of the past three years, which doesn’t even take into account the air-bag catastrophe. That disaster has reportedly been the cause of at least 17 deaths.

Due to the credibility concerns involved, those companies have already made arrangements to avoid supply concerns by working with Takata’s main rivals, chief among them, Autoliv Inc. This ends up creating a conundrum in which the only sound coming from such a decision is the death spiral of Takata.

The estimated time for the bankruptcy process ranges anywhere from just a few months when looking at things from the most positive perspective to something that could potentially drag into early 2018.