Speaking of "Engineering Failures", Takata has declared bankruptcy... 1

[JohnRBaker]

Now who will be responsible for replacing the remaining defective airbags? I read somewhere recently that only something like 40% or so of the defective airbags on the road in the US have been replaced and that the rest was waiting for replacement parts. Will those parts now be forthcoming and who will be paying for them?

Air-bag maker Takata files for bankruptcy protection

http://www.marketwatch.com/story/air-bag-maker-takata-files-for-bankruptcy-protection-2017-06-25

John R. Baker, P.E. (ret)
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[Sparweb]

Whew - My wife got her Honda CRV recall replacement done last month. Just in time!

STF

 

[3DDave]

The makers of the cars have always been responsible for correcting safety defects in the cars. This will delay things because the safety testing that was done to begin with was passed with Takata inflators. I don't foresee automakers retesting all the models they tested before with a different inflator.

 

[SwinnyGG]

Takata declaring bankruptcy does not mean their operations cease to exist.

 

[VEBill]

"who will be responsible?"

The vehicle OEMs (e.g. Toyota, Honda, etc.) are the responsible parties.

 

[JohnRBaker]

Perhaps, but will the company that now owns the Takata assets be in a position to provide the replacement parts or not? And even if the OEM's have final responsibility, they would still have been expected to get some sort of relief from Takata, first in terms of the replacement parts themselves and then with respect to any monetary relief in terms of the lawsuits that have, or will yet be filed, by the injured parties or their families, to say nothing of potential legal action by the OEM's themselves agasint Takata.

John R. Baker, P.E. (ret)
EX-Product 'Evangelist'
Irvine, CA
Siemens PLM:
UG/NX Museum:

The secret of life is not finding someone to live with
It's finding someone you can't live without

 

[EdStainless]

And this is probably why the sale price was so low.
This is an ongoing liability, and those plants will have to make the replacements.

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[dik]

It is my understanding that unless agreed to as part of the deal, a firm buying another out of bankruptcy, has no obligation for the bankrupt company's debts. Liabilities are carefully examined during bankruptcy 'buyouts'.

Dik

 

[IRstuff]

Wouldn't be much point for anyone to buy the assets if they have to get stuck with the liabilities, which are enormous. It would likely take decades to break even on such a large liability. As usual, employees wind up paying for management greed and mistakes.

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[BrianPetersen]

The cars involved will permanently be on recall but with no replacement parts available, until they are scrapped at their normal end of life. A lot of the cars involved are old enough that they're probably not worth repairing even if replacement parts were available.

 

[EdStainless]

I haven't found the details yet, but my hunch is that the new owners accepted the replacement part portion of the liability and nothing else. If they hadn't I can't see a bankruptcy court signing off on the deal. If this was really going to strand the effected cars then the court could have forced liquidation and damage payments. These packaged bankruptcies are notorious for the extensive side deals involved.

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P.E. Metallurgy, Plymouth Tube

 

[EdStainless]

Today's WSJ

https://www.wsj.com/articles/bankrupt-air-bag-maker-takata-means-to-keep-limping-along-1498477869

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[GregLocock]

As I understand it the OEMs are legally liable for recalling and repairing the vehicles, but they would normally pass the costs involved to the supplier of the defective parts.

Cheers

Greg Locock


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[SwinnyGG]

As I understand it the OEMs are legally liable for recalling and repairing the vehicles, but they would normally pass the costs involved to the supplier of the defective parts.

In my experience with recalls- the OEM is legally responsible, but their contracts with suppliers dictate that suppliers absorb recall costs due to defective parts, and those contracts almost always stipulate that mergers/acquisitions/bankruptcies do not absolve the supplier of responsibility. There are a LOT of relatively small suppliers to the big OEMs, and for a lot of those companies, a big recall would be more financially disadvantageous than a bankruptcy would be. Some OEMs have been burned in the past by small suppliers declaring bankruptcy in response to recalls on their parts, so this is a big part of supplier/OEM contracts.

 

[stevenal]

So the contract nullifies the bankruptcy that nullifies the contract? Not sure I get how this works.

 

[IRstuff]

I think all that means is that lawyers make a bunch of money negotiating the terms of acquisition of a bankrupt, liable, supplier. The same general principle applies to things like toxic spills, etc. It pays to do due diligence.

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[EdStainless]

The OEMs need the replacement parts, so they need to keep these plants running, and now they realize that they will be paying for parts. But none the less this process must continue (buying back cars with defective airbags would cost more).
So this is a settlement that hurts everyone, and by sharing the pain they can live with it.
This is a company that had a market cap of over $2b a couple of years ago, now with a market value of 1/16th of that.


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P.E. Metallurgy, Plymouth Tube

 

[BrianPetersen]

In many cases I'm not so sure that buying back cars with defective airbags would cost more.

A lot of the recalled cars are 10 - 15 years old or more (and the concern is primarily on "aged" airbags anyhow), and many of those cars are worth scrap value or not much more. For those, the manufacturer's least-cost course of action could very well be to clandestinely buy these cars cheaply whenever they show up used, then either blow up or remove or destroy the defective airbags so that no one else can sell them, then send the car on its way to the scrap heap.

Problem is that this can't be an official publicly-announced policy, because then suddenly that 15 year old car magically becomes worth its weight in gold to anyone who happens to be sitting on one.

 

[Compositepro]

Filing for bankruptcy protection does not mean that a corporation is shut down or been bought by some other corporation. Quite the opposite. It allows operations to continue while supervised negotiations with creditors take place in an orderly fashion.

 

[SwinnyGG]

So the contract nullifies the bankruptcy that nullifies the contract? Not sure I get how this works.

It's not complicated.. Honda and Toyota and GM and Chrysler and whomever else enter into a contract with Takata to buy their airbags

Part of that contract stipulates that Takata will absorb all costs related to any recall of Takata parts (and usually pay a bunch of penalties as well, to the OEM)

Another part of that contract stipulates that the contract can't be terminated in a merger or acquisition, and that the contract will be fixed with an Assignment for Benefit of Creditors, which means any damages Takata owes due to that contract is first in line to be paid out of forfeiture of assets should Takata file for bankruptcy.

The OEMs need the replacement parts, so they need to keep these plants running, and now they realize that they will be paying for parts. But none the less this process must continue (buying back cars with defective airbags would cost more).

No, they won't, at least not in full. Takata is not ceasing to exist as a company, and the plants are not going anywhere.

KSS is basically buying more manufacturing capacity for cents on the dollar. The recall killed Takata's incoming revenue, but their existing contracts and manufacturing capability are worth a lot more than the cost KSS paid to acquire Takata's assets.