NOV. 3, 2015
Honda Drops Takata as U.S. Issues Huge Fine Over Airbags
By HIROKO TABUCHI and DANIELLE IVORY
Honda Motor Company on Tuesday dropped the embattled manufacturer Takata as its airbag supplier, concluding that the company, its longtime partner, had "misrepresented and manipulated test data."
Also on Tuesday, the National Highway Traffic Safety Administration announced a $70 million penalty for Takata, one of the world's largest airbag makers, for failing to promptly disclose defects in its airbags, millions of which have now been recalled. That penalty could increase by $130 million if Takata does not live up to the terms of the consent order, a condition that would make it a record civil punishment  for the auto industry.
Anthony Foxx, the transportation secretary, also said that Takata manipulated the test data. In its consent order, the safety agency said that "in several instances, Takata produced testing reports that contained selective, incomplete, or inaccurate data."
"Delay, misdirection and a refusal to acknowledge the truth allowed a serious problem to become a massive crisis," Mr. Foxx said at a news conference. "When we first brought this issue to light, there was a lot of denial on the part of Takata."
Eight deaths and over 100 injuries have been linked to the defective airbags, whose metal casing, called an inflater, can rupture violently, sending shards flying into the passenger cabin. More than 19 million vehicles in the United States and millions more worldwide have been recalled.
In a statement, a Takata spokesman, Jared Levy, did not dispute the claims that the company had manipulated testing data.
"We do not believe that these issues, which we brought to the attention of N.H.T.S.A., are connected to the current recalls, which extensive testing continues to show are associated with long-term exposure to conditions of high heat and absolute humidity," Mr. Levy said.
"Indeed, some of the issues relate to development testing done on inflaters for Honda vehicles 15 years ago, which have been subject to recalls for several years," he said.
A Honda spokesman said that information it had now indicated that Takata "was not forthcoming" during a N.H.T.S.A. investigation into the earliest recalls over the defect.
"Honda has also identified other apparent instances of misleading or inaccurate test data that were provided to Honda over time," the spokesman, Chris Martin, added. "The Takata airbag inflater test data of which Honda is now aware relates to a variety of testing."
Mr. Martin declined to give further details. He said that Honda had alerted federal regulators to these documents as they had become available, and had ordered third-party auditing of all of Takata's test data to more fully understand the issue.
In a news conference in Tokyo on Wednesday, Hiroshi Shimizu, Takata's senior vice president for global quality assurance, denied that company engineers had manipulated test data.
"There was no problem with our test results. But because there was variation in the data, we did not report everything. We reported only part of the data," Mr. Shimizu said.
Still, he said, "there was no data manipulation."
Though Honda has distanced itself from Takata, for years it had stood by its supplier. Airbags make up Takata's largest business, accounting for about 40 percent of the company's sales to external customers. And the United States is Takata's largest market, accounting for about 37 percent of its net sales.
Takata shares have slumped 45 percent since last fall as scrutiny of the issue has mounted.
Honda said that no new Honda and Acura models under development would be equipped with front driver or passenger Takata airbag inflaters. Takata continues to supply Honda with other safety equipment, including seatbelts.
Honda alerted Takata to an airbag rupture more than a decade ago.  Deeming the episode an anomaly, it did not issue a recall or seek the involvement of federal safety regulators.
Internal tests conducted by Takata have been a source of increasing concern as regulators and lawmakers have tried to determine the root cause of the defect. Last year, The New York Times reported that steel inflaters in two of the airbags cracked during tests.  But Takata executives discounted the results and ordered the lab technicians to delete the testing data and dispose of the inflaters, according to two former employees, including a senior member of the testing lab. Takata denied the accusations.
Last month, The Times reported  that in 2010, as Takata and Honda assured regulators that the airbag explosions were linked to isolated manufacturing issues, they were also enlisting the help of a top pyrotechnic lab at Pennsylvania State University to determine whether its propellant, called ammonium nitrate, might have been at the heart of the problem. When the study's 2012 conclusion cast doubt on the use of ammonium nitrate, Takata dismissed the result and waited more than two years before sharing the research with regulators.
Now, though, Takata will be changing how it makes its airbags.
As part of the consent order, Takata is required to phase out its use of ammonium nitrate unless it can prove that it is safe.
Former Takata engineers have said that they raised concerns  about the use of the compound in the late 1990s, saying that it is too unstable for a precision product like an airbag. But their concerns went unheeded, they have said.
If Takata cannot show regulators that the compound is safe, it will be required to recall all of its airbags that contain ammonium nitrate inflaters.
"There are potentially millions more," Mr. Foxx said, though he did not have an exact number.
The long-awaited punishment caps years of recalls, congressional hearings and shifting explanations by Takata to try to explain what was causing the airbags to explode.
"Takata said it had isolated the problem, it said it had uncovered the mistakes that led to ruptures, and it had pledged its products were safe," Mr. Foxx said. "But we know that the ruptures have continued."
Mark R. Rosekind, head of the National Highway Traffic Safety Administration, referred to a meeting between Takata officials and safety regulators in January 2012. Takata, he said, "failed to clarify inaccurate information" provided to the agency during a presentation. He said Takata had also failed to comply fully with instructions in orders issued by the agency in the fall of 2014.
Takata's chairman struck a tone on Tuesday that was in contrast to the resistance the company gave regulators a year ago, when it insisted that the safety agency had no legal authority to compel an auto supplier to conduct a recall.
"We deeply regret the circumstances that led to this consent order," Shigehisa Takada, Takata's chairman and chief executive, said in a statement. "This settlement is an important step forward for Takata that will enable us to focus on rebuilding the trust of automakers, regulators and the driving public."
Honda's decision to change suppliers is particularly damaging to Takata's finances, analysts said.
Honda, together with Volkswagen, General Motors, Renault-Nissan and Fiat Chrysler, accounted for over half of Takata's consolidated net sales in the 12 months through March 2015, according to its latest annual report. As of March 31, Honda also held a 1.2 percent equity stake in Takata.
"Takata is certainly in a very bad spot, both from a financial as well as a business partner standpoint," said Akshay Anand, an analyst for Kelley Blue Book.
"This whole issue was a potential death knell for Takata from the start," he added, "and things aren't getting any easier."
Hisako Ueno contributed reporting.
How the Takata Scandal Unfolded
An airbag explodes in a 2002 Honda Accord. Honda and Takata deem it "an anomaly"  and do not involve federal safety regulators.
After becoming aware of three more ruptures in 2007, Honda recalls about 4,000 vehicles to repair Takata airbags for potential ruptures -- the first recall related to the defect.
The National Highway Traffic Safety Administration opens an investigation into Takata's airbags. It closes it months later,  citing the seemingly isolated nature of the problem.
After deaths related to defective airbags, N.H.T.S.A. opens another investigation. Major automakers, including Toyota and BMW, begin regional recalls over the next several months.
N.H.T.S.A. demands that Takata and automakers expand their recalls  to cover the entire United States. Takata does not immediately comply.
Takata admits that millions of its airbags are defective. N.H.T.S.A. estimates that more than 19 million vehicles are affected. 
N.H.T.S.A. announces that it has levied a fine of up to $200 million against Takata, the largest civil punishment ever imposed  in the auto industry.