Takata files for bankruptcy, overwhelmed by air bag recalls

Takata, Auburn Hills
TK Holdings Inc. headquarters is shown in Auburn Hills, Mich., Sunday, June 25, 2017.

(AP) — Japanese air bag maker Takata Corp. has filed for bankruptcy protection in Tokyo and the U.S., overwhelmed by lawsuits and recall costs related to its production of defective air bag inflators linked to the deaths of at least 16 people.

The company announced the move Monday morning Tokyo time. Takata confirmed that most of its assets will be bought by rival Key Safety Systems, based in suburban Detroit, for about $1.6 billion (175 billion yen).

Takata’s inflators can explode with too much force when they fill up an air bag, spewing out shrapnel. Apart from the fatalities, they’re also responsible for at least 180 injuries, and touched off the largest automotive recall in U.S. history. So far 100 million inflators have been recalled worldwide including 69 million in the U.S., affecting 42 million vehicles.

>>Online: NHTSA on Takata air bag recall

Under the agreement with Key, remnants of Takata’s operations will continue to manufacture inflators to be used as replacement parts in recalls. The recalls, which are being handled by 19 affected automakers, will continue. Although Takata will use part of the sale proceeds to reimburse the automakers, experts say the companies still must fund a significant portion of the recalls themselves.

“It’s likely every automaker involved in this recall will have to subsidize the process because the value of Takata’s assets isn’t enough to cover the costs of this recall,” said Karl Brauer, executive publisher of Kelley Blue Book and Autotrader.

Takata and the automakers were slow to address the problem with the inflators despite reports of deaths and injuries. Eventually they were forced to recall tens of millions of vehicles. Because of the size of the recall, some car owners face lengthy waits for replacement parts, meanwhile operating their cars worried that the air bag could malfunction in a crash.

U.S. lawmakers have criticized the pace of the recalls. At the end of April, only 22 percent of the 69 million recalled inflators in the U.S. had been replaced, leaving almost 54 million on the roads, according to the National Highway Traffic Safety Administration website.

The defect in the inflators stems from use of the explosive chemical ammonium nitrate in the inflators to deploy air bags in a crash. The chemical can deteriorate when exposed to hot and humid air and burn too fast, blowing apart a metal canister.

At least $1 billion from the sale to Key is expected to be used to satisfy Takata’s settlement of criminal charges in the U.S. for concealing problems with the inflators. Of that amount, $850 million goes to automakers to cover their costs of the recalls. Takata already has paid $125 million into a fund for victims and a $25 million fine to the U.S. Justice Department.

Attorneys for those injured by the inflators worry that $125 million won’t be enough to fairly compensate victims, many of whom have serious facial injuries from metal shrapnel. One 26-year-old plaintiff will never be able to smile due to nerve damage, his attorney says.

The lead attorney for people suing the automakers said in a statement following the announcement that he doesn’t expect the bankruptcy to affect the pending claims against the companies. Settlement agreements with Toyota, Subaru, BMW and Mazda already have won preliminary court approval, Peter Prieto noted.

That settlement will speed the removal of faulty inflators from 15.8 million vehicles and compensate consumers for economic losses, he said. Claims are continuing against Honda, Ford, Nissan and Takata.

Fallout from the bankruptcy filing came swiftly from the Tokyo Stock Exchange, which said it was stripping the company founded in 1933 from trading as of Tuesday.

Key, a Chinese company with international operations, makes inflators, seat belts and crash sensors for the auto industry. It is owned by China’s Ningbo Joyson Electronic Corp. Its global headquarters and U.S. technical center is in Sterling Heights, Michigan.

Key also said it won’t cut any Takata jobs or close any of Takata’s facilities.

The Takata corporate name may not live on after the bankruptcy. The company says on its website that its products have kept people safe, and it apologizes for problems caused by the faulty inflators. “We hope the day will come when the word ‘Takata’ becomes synonymous with ‘safety,'” the website says.

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AP Business Writer Elaine Kurtenbach in Tokyo contributed to this report


What car owners need to know about the massive recall:

WILL THE RECALLS CONTINUE?

Yes. Automakers are ultimately responsible for the safety of their vehicles, and they have been funding the recalls.

Takata’s assets are expected to be sold for $1.6 billion to a rival company, Key Safety Systems, and part of Takata will remain under a different name to make replacement inflators for the recalls. Money from the sale will go to pay claims against Takata, including a court-ordered $850 million that will reimburse automakers for their expenses.

Another $125 million will go to victims and Takata will pay a $25 million fine to the U.S. government. It’s not clear yet where the rest of the $1.6 billion will go.

WHAT’S WRONG WITH THESE AIR BAGS?

Three independent reports concluded that the chemical Takata uses to inflate its air bags — ammonium nitrate — can degrade after long-term exposure to environmental moisture and high temperatures. If the ammonium nitrate degrades substantially, it can cause the inflators to become over-pressurized and rupture during air bag deployment. In the air bags being recalled, Takata didn’t use a chemical desiccant, a drying agent that can counteract the effects of moisture.

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HOW CAN I FIND OUT IF MY CAR HAS BEEN RECALLED?

The National Highway Traffic Safety Administration released a complete list of models covered by current and future Takata recalls. The full list can be found on the agency’s website . The government’s website also allows drivers search for open recalls . Owners should input the car’s vehicle identification number, or VIN, which can be found on the title or registration card, or on the driver’s side dash or door jamb. The VIN check page will be updated as automakers announce more recalls.

Cars and trucks made by 19 companies are included in the recall.

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WHICH CARS ARE MOST AT RISK?

The government says vehicles younger than six years old aren’t currently at risk of an air bag inflator rupture even if they’re in a high humidity region, because it takes time for the ammonium nitrate to degrade. But the risk grows as the vehicle ages.

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HOW LONG WILL I HAVE TO WAIT FOR A REPLACEMENT?

That varies by model, age of the car and manufacturer. For many models, dealers have ample parts in stock. Yet only about 15.5 million of the 69 million inflators had been replaced as of the end of April.

Parts are not yet available for some models, and other models haven’t been recalled yet. More recalls are coming as more parts are made. Some Takata replacement inflators will have to be replaced again because don’t have the drying agent. Other manufacturers are also supplying replacement air bags.

Remaining recalls are being phased in through the end of 2020. The phases are based on the age of the vehicles and exposure to high humidity and high temperatures. Owners will be notified when there is a remedy available and should get the repair immediately.

Some automakers are offering loaner cars until replacement parts are available.

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HOW CAN I SEE IF A USED CAR HAS HAD THE RECALL REPAIR?

Dealers can legally sell used cars without notifying customers about open recalls. The government’s VIN search goes back 15 years, so check the NHTSA website. Carfax, which sells vehicle history reports, also lets people check open recalls for free.

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SHOULD I DISABLE MY AIR BAG WHILE I’M WAITING FOR A REPAIR?

No. If you’re in a crash, it’s far more likely that the air bag will protect you than hurt you. The National Highway Traffic Safety Administration estimates that front air bags have saved 43,000 lives since they were required in the 1990s.