Recalls could test automakers' Takata ties

Japan’s Takata, whose potentially defective car air bags have been linked to four deaths in the United States, is unlikely to be dumped by its automaker customers given the cost and disruption of such a move – for now.


Some business is leaking to rivals, but the industry doesn’t have the spare capacity to make a significant dent in Takata’s contracts. But over the coming few years, as the next new models are designed and built, loyalty to Tokyo-based


Takata, the world’s No.2 safety equipment maker, is likely to be tested.


“Takata’s not going away,” said Scott Upham, a former executive at Takata and at third-ranked TRW Automotive Holdings and now president of Valient Market Research. “In traditional Japanese fashion, they’re going to take their lumps, be contrite and quiet about it, and try to make it up to Honda and the other automakers over time.”


Takata has a strong enough cash position to weather the crisis so far, and there is no sign that carmakers would, or could, quickly abandon the company, industry officials say. Air bags are built into a car’s design and can’t simply be replaced by another make. Vetting the safety of a new air bag design is time-consuming and costly.


Read MoreUS regulators expand number of vehicles affected by Takatarecalls


“There’s no alternative inflator producer with enough idle capacity to replace Takata quickly,” said a person with knowledge of the matter. “Over the shorter term, no automaker would be able to do that without causing huge disruptions in production.”


Takata’s finances could, though, be stretched further if an existing U.S. recall of some 7.8 million cars is made nationwide – as called for by three Democratic senators. That could mean an additional 5.3 million cars to fix, according to Reuters calculations based on data from the carmakers and the U.S. National Highway Transportation Safety Administration (NHTSA), ramping up the costs and making it the industry’s biggest recall in three decades.


Takata has said it set aside 75 billion yen ($690 million) for recalls, enough to cover up to 9 million cars. The company may book a quarterly charge of 2-3 billion yen to cover the cost of additional recalls of vehicles fitted with potentially defective air bags, two people familiar with the matter said on Monday.


In the event of a national U.S. recall, Takata would not be able to carry out that many fixes in a timely manner as it doesn’t have enough inflators in stock or the capacity to carry out that scale of action – though some of those cars may already have been scrapped. “There would be long, long lines of customers at car dealers waiting to get their cars taken care of,” said one of those who attended a Takata briefing.


Read MoreIt Looked Like a Stabbing, but Takata Air Bag Was the Killer


More than 16 million vehicles globally have been recalled for defective Takata air bags since 2008, the bulk of them built by Takata’s biggest customer, Honda Motor Co. In some instances, air bags have exploded with dangerous force, shooting shrapnel into the car.


Source Article from http://www.cnbc.com/id/102125638
Recalls could test automakers' Takata ties
http://www.cnbc.com/id/102125638
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