Airbag manufacturer Takata Corp. filed bankruptcy on June 25 in response to the billions of dollars in liabilities it has incurred over the recall of its dangerous airbag inflators.
Airbag manufacturer Takata Corp. filed bankruptcy on June 25 in response to the billions of dollars in liabilities it has incurred over the recall of its dangerous airbag inflators. The recall is the largest in automotive history. The airbag inflators have been linked to at least 16 fatalities and over 150 injuries around the world. The Japanese company is seeking bankruptcy protection in both the U.S. (under Chapter 11 – reorganization) and Japan (under the Civil Rehabilitation Act, that nation’s version of Chapter 11).
The next step following the bankruptcy filing will be finding bridge loans that will enable the company to meet its other obligations. The prime candidate for said loans is Sumitomo Mitsui Financial Group, Inc.’s core banking unit. Advance reports suggest that Takata will ask for tens of billions of yen (hundreds of millions in USD).
In addition, Takata is working on a deal to sell the remainder of its assets to Key Safety Systems, another auto parts manufacturer and a Takata competitor. That sale is expected to garner the beleaguered company $1.59B. Post-bankruptcy, Takata would continue working to fulfill its obligations under the recall, after which it will no longer manufacture airbags.
National Highway Traffic Safety Administration (NHTSA) regulators estimate that roughly 70 million individual airbag inflators will be replaced by 2019.
Impact on Automakers
Understandably, automakers are concerned about what Takata’s bankruptcy means for them, specifically, as it pertains to fulfillment of the recall repair requirements. In the U.S. alone, around 46.2 million vehicles have been affected by the recall and, to date, less than 40% of those vehicles have been repaired.
The recall efforts began around 2008 and have affected 19 automakers, from Ford Motor Company and Volkwagen AG to Tesla, Inc. and (hardest hit) Honda Motor Company. Takata still owes automakers about $850M, having agreed to a $1B total payout as a result of a Department of Justice investigation and the company’s subsequent guilty plea pertaining to criminal wrongdoing.
This includes a $125M victim compensation fund (also covering future injuries) and a $25M fine.
The company has until early 2018, or within five days of signing a financing deal, to come up with the $850M. In January of this year, Barbara McQuade, then-U.S. Attorney General, said that the DoJ would be listed as a creditor in any Takata bankruptcy proceeding.
Impact on the Injured
Takata is the focus of several lawsuits over the damage caused by its defective airbag inflators. The bankruptcy has plaintiffs’ lawyers concerned for their clients, especially in light of the relatively small victim compensation fund.
Some lawyers estimate that the injured (and the families of the deceased) will receive five to ten cents on the dollar of the amount they would have recovered had Takata been a more financially stable company. The actual allocation formula for awards has yet to be announced and will be developed by a court-appointed special master.
As Key is expected to pay $1.59B for Takata’s assets, other lawyers believe that victims may get better damages awards. When General Motors set up a $1B fund for victims of is ignition switch defect (vehicles would shut off without warning), roughly $600M was paid to settle the 399 injury and fatality suits against the automaker.
Bankruptcy experts believe that Takata’s sale of assets to Key will be structured such that Key will be “free and clear” of Takata’s liability.
Key Safety Systems, a Chinese-owned company, has operational headquarters in Sterling Heights, Michigan.
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