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Takata moves from denial to compromise in air bag crisis

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Japan's Takata Corp, which for months resisted US regulators' demands to widen a recall over its potentially lethal air bags, has had an"attitude shift" and is in a mood to compromise to try to resolve the ballooning auto safety crisis, said a person close to the company.

[BEIJING] Japan's Takata Corp, which for months resisted US regulators' demands to widen a recall over its potentially lethal air bags, has had an"attitude shift" and is in a mood to compromise to try to resolve the ballooning auto safety crisis, said a person close to the company.

That doesn't mean Takata is ready to take all the blame and shoulder all the cost of fixing tens of millions of air bags that have been linked to six deaths, all in Honda Motor cars, when they exploded violently and sprayed metal shards into the vehicles.

The knowledgeable person, who has been briefed by Takata management leaders, said the company is adamant that its automaker customers share the blame, and the financial burden.

"'There's no use or gain in fighting the regulators' is how one Takata management leader explained to me as to why Takata has undergone this shift," the person said, adding Takata, via its lawyers, began contacting the US Department of Transportation and the National Highway Traffic Safety Administration (NHTSA) in mid-April.

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Those talks eventually led to last week's announcement by Takata and the US regulators doubling the recall of air bags to nearly 34 million vehicles. Millions more have been recalled outside the United States since 2008.

"We have always worked closely with NHTSA and other American regulators, and have been in close contact right from the start with them over the current recall," Takata spokesman Hideyuki Matsumoto told Reuters.

MOUNTING COSTS

The person said one factor motivating Takata to agree to the wider recall was a daily fine NHTSA imposed on the Tokyo-based firm in February for not fully cooperating with investigations.

"The fine was mounting," the person cited a Takata executive as telling him, noting this was costing Takata upwards of US$400,000 a month. As part of last week's recall announcement, NHTSA said those fines had been suspended.

As of end-March, Takata, valued at close to US$900 million, had US$636 million in cash and had set aside US$520 million in the past 18 months for recall costs. It has three bonds outstanding and yields have risen steeply in recent weeks, reflecting some investor concern over the firm's finances.

Bonds due in 2021 are yielding 4.99 per cent, more than 400 basis points higher than when NHTSA expanded its warning about faulty airbags in October - a move that sent Takata shares tumbling by almost a quarter.

The knowledgeable person said Takata felt it was also coming under pressure from automakers including Honda, Toyota Motor and Nissan Motor, which late last year began recalling millions of air bags for their own investigations.

Takata had refused to take part in those recalls, saying the defect cited by car manufacturers was not "officially recognised."

ROOT CAUSE

Announcing the expanded recalls last week, Takata indicated it still hasn't got to the root cause of the defective air bag inflators, though it said the performance of some inflators could be affected "by exposure over several years to persistent conditions of high absolute humidity." However, it noted that this long-term susceptibility to humidity couldn't be established conclusively "within the scope of testing specifications" set by automakers - a hint, say some analysts, that Takata holds its automaker clients partly to blame.

The knowledgeable person said a Takata executive told him the statement was not meant as a declaration of war against automakers, rather it was meant to highlight the difficulty of pinning blame to just one party.

He said Takata has not begun negotiating with automakers on how to divide the financial burden of fixing recalled air bags that Scott Upham, president of Valient Market Research, which tracks the air bag industry, reckons could be as high as US$4-$5 billion.

"Meaningful negotiations will have to wait until Takata and others involved can conclusively identify the root cause for the defective inflators," the person said, reflecting Takata's position.

Company spokesman Matsumoto said Takata "plans to start talks with automakers," but the first priority is to identify what's causing the inflator problem. He declined to elaborate.

Takata faces dozens of civil lawsuits, which have been consolidated in a U.S. federal court in Miami, alleging the Japanese firm and automakers knew for years about potential problems with the air bags but failed to warn customers or alert regulators until recently.

A subcommittee of the US House Energy and Commerce Committee has scheduled a hearing for Tuesday, June 2, on the problems that led to the recall - which industry experts said could take years to complete.

And air bags are still rupturing.

This week, Honda said a driver-side air bag erupted on May 13 in a 2005 Honda Fit that was being scrapped at a Japanese yard, sending shrapnel into the air. The car was one of the models covered by Honda's expanded recalls announced earlier this month. No one was injured, Honda said.

REUTERS

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