Takata's $24 Billion Worst-Case Scenario
The cost of a comprehensive recall of all Takata Corporation airbag inflators could sink the company.
A source at airbag manufacturer Takata told Bloomberg that a worst-case scenario — a recall of 287.5 million airbag inflators — would cost the company $24 billion dollars, far more than analysts previously estimated.
The cost would be the equivalent of four times the projected revenue Takata expects for the 2015-2016 fiscal year, or six times the total value of the company’s assets.
The spreading nature of the recall, the result of exploding airbags linked to nine U.S. deaths, has caused Takata’s stock to shed nearly 70 percent of its value since last fall. This latest news casts doubt on Takata’s ability to weather the storm.
Eight days ago, it was reported that Takata was planning to sell most of its shares in other companies —including several Japanese automakers — in order to finance the ongoing recall.
After that, Reuters reported that Takata was on the hunt for capital, and had started estimating potential recall costs to determine how much they will try to raise. The number they landed on provided the latest bombshell for the company.
Besides recalling a climbing number of affected vehicles, Takata has to demonstrate what caused the explosions to the National Highway Traffic Safety Administration, or at least prove that its airbags are safe. The company has until the end of 2019 to do that.
As of mid-March, 24 million vehicles from 14 automakers have been recalled in the U.S. — including a car owned by NHTSA chief Mark Rosekind — with 7.1 million inflators replaced.
Honda and Toyota have said they will stop using Takata-sourced airbags in new vehicles.
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As an engineer, this story saddens me. Stonewalling and test data fakery aside, this really comes down to a failure of chemical and mechanical engineering. Propellant that explodes when exposed to long-term humidity, and the failure to "keep the powder dry" (literally) - both are due to lax design and testing. Worse, the same weak design was propagated through many products. Nobody realized that the entire company's fortunes rested on the pillars of engineering integrity.
ALL Takata senior management needs to go to jail for a year for every death. They knew. Yes, they knew and keep sending these defective airbags to multiple manufacturers 'round the globe. Bastards.