Japanese Car Companies Brace for Takata Bankruptcy

Allan Goodman
June 17, 2017

Following the news, Takata stock was for the time being suspended on the Tokyo stock exchange.

Also at stake is $850 million owed by Takata to major global automakers under a settlement agreed to earlier this year stemming from the automotive industry's largest ever safety recall.

The major problem now faced by Takata is that, a deal with Key Safety Systems might not become reality until Takata files for bankruptcy, which is exactly what the company has made a decision to do.

At least 15 people have died in accidents involving faulty Takata air bag inflators in the United States, Malaysia and elsewhere.

According to reports it is expected that the company will first seek bankruptcy protection in Japan; after that its US subsidiary can then file for Chapter 11 bankruptcy protection in America.

The Nikkei business daily reports a new company will be created under Key, which will purchase Takata operations for about $1.6-billion, and will continue supplying airbags, seat belts, and other products, leaving liabilities behind in a separate entity.

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Takata is still building replacements required under a recall of around 100 million inflators that could detonate with excessive force after prolonged exposure to heat. Michigan-based KSS, owned by Chinese supplier Ningbo Joyson Electronic Corp 600699.SS , now is a smaller competitor to Takata in airbags and seatbelts. On top of this, the company agreed to pay $125 million to a victims' compensation fund.

A US judge said earlier this year the costs of replacing all of the faulty Takata inflators could be $8 billion.

Then-U.S. Attorney Barbara McQuade said in January that if Takata filed for bankruptcy, the Justice Department would be a creditor in the restructuring.

If the inevitable does happen, Takata will be remembered as the largest bankruptcy in Japan post-World War II history. "Its cost will reach far beyond Takata, weighing on the financials of almost 20 automakers", Brauer continued. Mounting liabilities from having to replace more than 100 million air bags forced the company to seek an acquirer that could get it through the costly restructuring process.

Takata airbag inflators came under controversy when it was found that they explode with excessive force, causing metal and plastic shrapnel to go haywire inside the auto, therefore injuring occupants.

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