How to lose 98.5% shareholder value in 40 months?

​Takata Corporation (USD5.35b turnover) founded in 1933 employed 60,000 workers in 23 countries to manufacture automotive parts including steering wheels, seatbelts, child restraints and airbags. Takata Corporation shares were trading at just 43 cents last month, and far from a high of USD60.13 in early March 2014. How could this happen?

​One of their components, inflators are used to inflate airbags that protect the occupants of vehicles during impacts. It turns out that these inflators can explode with excessive force unleashing metal shrapnel inside cars and trucks.

Takata could have fronted up when they first noticed that people were being injured when inflators started exploding in cars. However, what they chose to do was to manipulate and withhold key information about the faulty inflators. Worse still, they did this for years.
Now there are up to 125 million vehicles worldwide, including 42 million in the US alone, that have had to be recalled to have their Takata airbags replaced. This recall involves 34 different auto brands. The automotive industry has never had to face a product recall of this size before in its entire history.
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In Takata airbags: the slow train wreck - 3 years on, I asked ‘What was going on in the board room at Takata headquarters to address the rising defect rates’ at the Monclova plant in Mexico where the faulty airbag inflators were manufactured.

Despite Takata’s chairman stating in February 2014 ‘that he’ll create a “quality assurance panel” to scrutinize the company’s production procedures’ and take other actions, it did not address the issue of exploding inflators causing injury and death. 

Three years later, in February 2017 Takata pleaded guilty in a U.S. federal court to a criminal charge of wire fraud for which it has to pay $1 billion, including a $125 million fund to compensate victims and their families. Acting Assistant Attorney General Blanco stated “For over a decade, Takata lied to its customers about the safety and reliability of its ammonium nitrate-based airbag inflators. Takata abused the trust of both its customers and the public by allowing airbag inflators to be put in vehicles knowing that the inflators did not meet the required specifications.  Today’s sentence shows that the department will work tirelessly to hold responsible those who engage in this type of criminal conduct.”

The penalties include $US850 million in restitution to automakers, $US125 million to compensate victims and their families and a $25 million criminal fine. Separately, three former executives in Japan were charged with falsifying test reports. The company's chief financial officer, Yoichiro Nomura also agreed that Takata would be sold.

At least 19 deaths and 180 injuries worldwide have been tied to the defect that led Takata Corp to file for bankruptcy protection. In June 2017, Key Safety Systems purchased nearly all Takata assets for $1.57b stating that it ‘should have no effect on the recall’. The recalls started in 2008 and could take until 2023 to complete. Many vehicles that have already been fixed once are still not safe and will have to be recalled again.

Takata demonstrated a complete lack of disregard for the driving public when they chose to withhold key information that would be potentially damaging to their company reputation and erode shareholder value. Senior officers and the board are ultimately responsible for developing and upholding values such as honesty, equity and integrity that we all expect from a company whose business it is to keep us safe. The officers and directors at Takata have acted in clear disregard of these values. They have let themselves down, the company down, and destroyed shareholder value by not acting effectively when customers became injured and in some cases died as a result of their defective inflators. This abuse of trust did irreparable damage to Takata from which it could never recover.
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If they had only been open and transparent from the very beginning when the first defective inflators were discovered back in 2008, the industry would not be facing the size of recall that it has today. Takata may well have survived without filing for bankruptcy and leaving Key Safety Systems to fix up the mess it created.