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Massive air bag recall could drive Takata into the red

By Yoko Kubota and Maki Shiraki

TOKYO (Reuters) - Japanese auto parts maker Takata Corp <7312.T> 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>.

EXPANDING RECALL

Honda Motor Co <7267.T> and Toyota Motor Corp <7203.T> were among four Japanese car makers joining this month's global recall over potentially flawed Takata air bag inflators made in 2000-2002.

That tally looks set to expand further after Honda and six others said this week they were recalling more vehicles in some high-humidity regions of the United States at the request of the National Highway Traffic Safety Administration to replace Takata air bag inflators.

General Motors Co on Wednesday told its North American dealers not to sell an inventory of about 33,000 new and used Chevrolet Cruze sedans from model years 2013 and 2014 because of a potential problem with Takata air bags.

A Takata spokeswoman said the financial impact of the recalls was unclear.

But several analysts said they were assuming a cost per recalled vehicle of around $90 to $100, based on replacement part prices, labour costs and other factors.

That could mean a charge of around $500 million over this month's recalls for the year to next March, pushing it into a net loss for the year.

Takata has forecast a 16 billion yen ($157 million) profit for the year to March 2015, after returning to the black last year from a record 21.1 billion yen net loss in the year to March 2013.

Takata Chief Executive Shigehisa Takada and Chief Operating Officer Stefan Stocker, who are expected to appear in front of shareholders at Thursday's annual meeting in Tokyo, said in a statement this week that the company would make concerted efforts to strengthen its quality control and prevention measures.

Shortly after car makers last year recalled 4 million vehicles worldwide over potentially exploding passenger-side air bags, Takata took a $300 million charge, equivalent to a cost-per-recalled vehicle of about $75.

The cost of the latest recall could escalate if vehicles made later than 2002 or by additional auto makers become involved, or if a safety investigation in the United States finds evidence that driving in high humidity increases the risk of air bag explosions, as officials have indicated is possible.

(Additional reporting by Taiga Uranaka; Editing by Edmund Klamann and Alex Richardson)

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