Case Study — Mind-blown “Takata”

A CNN Money headline once read “Embattled auto parts supplier Takata has defied U.S. regulators, ignoring a key deadline to expand its recall of airbags that may contain a fatal flaw.” This news came against the backdrop of the exploding air bags of one of the world’s largest supplier of automotive safety gear, which supplies about 20 percent of the global airbags market boasting clients such as Honda Motor Corp and Toyota.

The National Highway Traffic Safety Administration (NHTSA) had given Takata until midnight to issue a nationwide recall in the US, but the company allowed the deadline to pass without taking action. Until now the recall had been limited to a select number of states within the US. Takata could face a fine of up to US$35 million if it does not comply. However sources at Takata were reported to have countered the order thus:

“The recall should be called by auto manufacturers, not suppliers, so it is not up to us to decide the recall […] But we will fully cooperate once the makers decide to recall.”

The safety track record of Honda Motor Corp vehicles have so far been linked to four deaths-all involving faulty Takata air-bag inflaters. The company is also facing numerous lawsuits involving occupants allegedly injured or killed by Takata air bags in Honda cars that ruptured during a crash. The NHTSA has so far identified about 5 million Honda and Acura vehicles affected by the Takata air bag problems.

This further complicates Honda’s admission of having failed to report 1,729 death and injury incidents to US regulators in an 11-year period starting in 2003 as results of an internal audit exposed lapses in its ability to meet federal reporting requirements.

Since 2008, Takata and its major automotive clients have initiated several rounds of recalls to fix the air-bag defect linked to four deaths in the US and dozens of injuries. A new problem nonetheless emerged early 2014 amid reports of injuries air bag ruptures in hot, humid areas in the US South, raising fresh questions about the scope of the inflater defect.

Honda recalled a batch of “Accord” passenger cars in 2002 for Takata air bags at risk of rupturing, well before the Japanese companies first learned of injuries related to an entirely different air bag defect.

The documents related to the 2002 recall add more detail to a timeline that has slowly been coming together in relation to air-bag inflater defects at the center of a recall affecting millions of vehicles world-wide made by several auto makers that used Takata air bags. Those air bags are at risk of exploding, sending metal fragments throughout the cabin of a vehicle.

Executives from Takata and Honda were questioned by a US senate committee, amid a Justice Department investigation into Takata’s response to the problem.

Honda pointed out that the first known injury from an exploding Takata air bag came in 2004, which contradicts Takata’s position of having first learned about it in 2005.

Investigations and notifications to other auto makers didn’t take place, however, for another two years. The auto maker said at the time that some passenger air bag modules installed in Accords and Acura TLs from the 2000 model year weren’t properly welded, a defect that could lead to gases expanding and rupturing the air bag’s inflater. A Takata spokesman said:

“The 2002 issue isn’t related to the much wider air-bag problems. In the 2002 issue, a supplier to Takata failed to properly weld filters […] leading to one real-world problem that didn’t result in an injury.”

A dealer first reported the problem to American Honda in November 2001, after a passenger air bag improperly deployed on an Accord built in Japan, according to documentation submitted to NHTSA in 2002. Two days later, Honda and Takata initiated investigations. By February, Takata requested Honda conduct a safety recall, and the auto maker then made plans to notify owners by mail, asking them to take vehicles to a Honda or Acura dealer. A Honda spokesman recently said senate testimony made earlier in November was about wider air-bag recalls, not a 2002 event that appears to be an isolated problem with a relatively small number of filters. NHTSA’s action and the latest recalls come on the heels of an announcement by Japan’s transport ministry that it received a report of an ‘unusual deployment’ of a Takata air bag as it was being removed from a scrapped car on 6 November 2014. In all this however, Takata has repeatedly pointed out:

“We will take prompt and appropriate action if we find there is a need for a recall as a result of the investigation.”

In an interesting, but still expected twist, Takata shares dropped by as much as 7.9 percent in Tokyo late November 2014, closing down 4.8 percent. Shares of Honda, Takata’s top customer, underperformed other auto stocks, falling 3.3 percent. Toyota shares eased 0.5 percent and Daihatsu shares slipped 1.2 percent, roughly in line with the broader market.

Sources:

Riley, C (CNNMoney, 3 December 2014) Takata defies U.S. regulators over exploding airbags. Retrieved from: http://money.cnn.com/2014/12/02/autos/nhtsa-takata-airbag-recall/

Stoll, J. ( The Wall Street Journal, 27 November 2014) Honda, Takata Recalls Began as Early as 2002. Retrieved from: http://online.wsj.com/articles/honda-takata-recalls-began-as-early-as-2002-1417106985

Torossian, R. (2017) Takata is Done: What Does That Mean for Faulty Airbag Owners? Medium, July 5., https://medium.com/@ronntorossian/takata-is-done-what-does-that-mean-for-faulty-airbag-owners-46f12ba6227b

________________________________________________________________

QUESTIONS

Q1. Where in the New Product Development stage, could the product defects have been prevented? You need to identify the entire stages in your answer and provide some justification from the case?

Q2. What promotions-mix strategy would you expect Takata to employ in order to curb its declining shares? Why?

Q3. In this updated question, what are the Quality Management implications of the “Rise and Fall” of Takata?

Originally published at https://www.linkedin.com.