Takata Recall Obligations Could Hit Automakers Despite Bankruptcy Filing

Now that TK Holdings, the U.S. business of Takata, along with 11 Mexican and U.S. subsidiaries, filed for Ch. 11 bankruptcy on June 25th due to billions worth of liabilities from recalls and lawsuits related to its air bags, industry observers see problems ahead not only for the firm’s suppliers, but automakers could be on the hook as well.

The auto supplier has said it will recall and replace millions of defective air bag inflators that were used in the vehicles of 19 auto manufacturers across the globe; filing for bankruptcy protection doesn’t relieve the firm of its recall responsibilities, according to a report from Bloomberg. As a result, if Takata comes up short in terms of these responsibilities, car makers may have to pay the remainder.

A potential buyer of the firm—Key Safety Systems of Michigan, which is owned by China’s Ningbo Joyson Electronic Corp and is seeking to acquire Takata’s viable operations—wouldn’t necessarily have to assume unwanted liabilities like recall obligations, said Robert Rasmussen, a University of Southern California law professor specializing in corporate reorganizations, as quoted by Bloomberg. Estimates for the future cost of the recall could be as high as $5 billion, with approximately $2 billion tied to Takata, while Takata asset sales are likely to generate about $1.5 to $2 billion; automakers may have to cover this shortfall.

– Nicholas Stern, senior editor

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