Takata said to put worst-case recall costs at 2.7 trillion yen

[TOKYO] Takata Corp, the supplier behind the auto industry's biggest recall ever, estimated that a comprehensive callback of its airbag inflators would total about 2.7 trillion yen (S$33 billion), according to a person familiar with the matter. The shares plunged.

The worst-case recall scenario would involve 287.5 million airbag inflators, said the person, who asked not to be identified because the company's deliberations are private. Takata and the automakers still have to determine how the costs are shared, the person said. A representative for Tokyo-based Takata declined to comment.

Takata plunged by 20 per cent to 414 yen, hitting the lower daily limit in Tokyo trading. The shares have declined 49 per cent this year, compared with the 12 per cent decline for the benchmark Topix index.

The projection by Takata exceeds a February estimate by a Jefferies Group LLC analyst by about US$7 billion. The National Highway Traffic Safety Administration has said Takata air-bag inflators caused nine fatalities by rupturing and spraying plastic and metal shards at motorists. The regulator is investigating all Takata inflators that use a chemical propellant banned from future models and is giving the company until as long as the end of 2019 to determine the root cause of the flaw or prove the inflators are safe.

Moisture seeping into Takata's inflators was determined to be the reason Takata air bags have ruptured by Orbital ATK, a researcher hired by a coalition of automakers that announced its findings last month. Challenges with determining root cause of the rupture issue has held automakers and the supplier back from deciding how the companies will divvy costs.

Expenses stemming from Takata air-bag recalls have totaled about 607.8 billion yen, Takaki Nakanishi, an analyst with Jefferies, wrote in his Feb 24 report. He estimated future expenses assuming an average cost of about 9,000 yen per unit.

"It is not difficult to imagine how hard it will be for Takata to rebuild its financial standing if the expenses are apportioned," Mr Nakanishi wrote.

"The Japanese automotive industry cannot avoid seriously adopting an exit strategy from the Takata issue."

BLOOMBERG