As U.S. hearings loom, Takata faces long slog in air bag crisis

Reuters News
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Posted: Nov 20, 2014 12:41 AM

By Karey Van Hall and Chang-Ran Kim

WASHINGTON/TOKYO (Reuters) - Takata Corp <7312.T> faces a long battle to gauge the fallout from a fast-moving air bag crisis as recalls mount up, adding to the costs for the loss-making Japanese auto parts maker.

Two U.S. Senators have called a news conference on Thursday with the sister of someone who died in an Arizona accident in 2003 - potentially a sixth fatality linked to Takata air bags. Arizona, which has a dry climate, has not been covered by a regional recall focusing on hot and humid areas.

Takata, automakers and regulators have yet to pinpoint why the company's air bags risk exploding with too much force, shooting metal shards into those inside the car. One theory is that moisture in humid climates can make the air bag inflator's chemical mix more volatile - even years after installation.

The Arizona death, and the first official confirmation that a Takata-made air bag killed a Florida woman in October, are likely to be raised at a U.S. Senate Commerce Committee hearing later on Thursday where officials from Takata, two automakers, the U.S. auto safety regulator and a crash victim will testify.

The hearing would be the first intensive public airing of Takata's air bag problem in a move reminiscent of congressional grillings Toyota Motor <7203.T> and General Motors <GM.N> executives faced over their recall crises in recent years.

Key questions are whether Takata knew of and hid the defects before alerting automakers and regulators; what it has been doing to get to the bottom of the problems; and whether a full nationwide recall is needed.

The U.S. National Highway Traffic Safety Administration (NHTSA) this week told Takata and five automakers to expand nationwide the piecemeal regional recalls of driver-side air bags. Takata said it would cooperate if an expanded recall is required, but noted a national recall could divert resources from humid areas where replacement air bags are most needed.

Takata and automakers say it will take time to work out how many more vehicles will need fixing - but it could be in the millions. Honda Motor <7267.T>, Takata's biggest customer, alone accounts for 2.8 million cars in the regional recalls covering driver-side air bags to date, across 11 states. A total of 4.1 million cars are subject to regional recalls including passenger-side air bags.

Since 2008, around 16 million cars with Takata air bags have been recalled worldwide, with more than 10 million of those in the United States.

TAKATA INDISPENSABLE - FOR NOW

Another question, particularly for drivers, is how quickly Takata can supply replacement parts.

In filings with NHTSA on Wednesday, automakers including Honda and Toyota said they were looking into the option of getting air bag inflators from other companies, but most said that would take too long. BMW <BMWG.DE> is backing Takata's efforts to shift inflator production to Germany from Mexico, and said it was not looking elsewhere for supply as it would take two years to approve a new source.

Takata recently told analysts it had enough existing and planned capacity to make replacement parts - but that doesn't factor in a nationwide recall. Reuters calculations show it could take five months to make just 1 million inflators on two new production lines planned in Mexico from January, assuming work around-the-clock five days a week.

Takata has set aside 77.5 billion yen ($660 million) for recall costs since last year to cover about 9 million vehicles, fewer than the number of cars recalled since 2013.

"The American people deserve to know the whole story behind this air bag recall," Senator Bill Nelson, a Democrat from Florida who will chair the congressional hearing, said on Wednesday. "That's why we're holding this hearing to get them some answers and spur automakers to do more to help get these dangerous cars off the road and fixed as soon as possible."

Thursday's witness list includes Hiroshi Shimizu, senior vice president of global quality assurance for Takata; Scott Kunselman, senior vice president of vehicle safety and regulatory compliance for Chrysler <FCHA.MI>; Rick Schostek, executive vice president of Honda North America; and Stephanie Erdman, a victim of Takata's air bag defect.

David Friedman, NHTSA's deputy administrator, will answer to criticism his agency has been slow to respond to the scandal.

NHTSA agreed in June to allow automakers to do a regional recall and use their discretion in deciding how and when to notify customers and replace faulty parts, resulting in confusion for car owners receiving mixed messages.

President Barack Obama said on Wednesday he was nominating Mark Rosekind, an expert in human fatigue, as the next head of NHTSA.

(Additional reporting by TOKYO, DETROIT, NEW YORK and WASHINGTON newsrooms; Editing by Ian Geoghegan)