Massive air bag recall could drive Takata into the red

Wed Jun 25, 2014 7:51pm EDT
 
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By Yoko Kubota and Maki Shiraki

TOKYO (Reuters) - Japanese auto parts maker Takata Corp (7312.T: Quote) could face a $500 million charge and a net loss this year - its second in three years - as a widening recall of air bag inflators begins to kindle worries despite its deep pockets.

Automakers have recalled 10.5 million vehicles over five years to fix Takata air bags deemed at risk of exploding and shooting shrapnel at drivers and passengers, in what has become one of the five biggest recalls in automotive history.

Creditors are not overly worried about the financial health of Takata, which has about $1 billion of cash on its books, banking sources said.

But they are closely watching the company, which may also face a grilling from shareholders at its annual meeting on Thursday, after the latest recall of 5.2 million cars this month.

"There is the worry that the volume of transactions with vehicle makers could decline because of the recall," said Koji Endo, an analyst at Advanced Research.

But he added: "The company has long had strength in design and development ... From the perspective of multiple parts sourcing as well, it would be hard to imagine large volumes shifting to other suppliers in the short term."

The safety woes have nonetheless taken their toll on shares of the world's second-biggest auto safety parts maker, which have fallen nearly 30 percent since the start of the year compared with a 6 percent drop in Tokyo's benchmark Nikkei average .N225.

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A visitor compares steering wheels at the Takata exhibition stand during a media preview day at the Frankfurt Motor Show (IAA), in this file picture taken September 10, 2013.   REUTERS/Kai Pfaffenbach/Files