Takata Corp. agreed to plead guilty and pay $1 billion to settle an investigation into its exploding air bags, which have been linked to at least 17 deaths worldwide, the U.S. Justice Department said.
The company will admit to wire fraud for misleading regulators, consumers and car manufacturers about the safety of its air bags, which would explode and spray drivers and passengers with shrapnel, according to court papers. Takata will be subject to an independent compliance monitor while on probation for three years. A press conference is underway in Detroit.
The Tokyo-based manufacturer has had difficulty coping with the recall, already the largest in history and expected to pass 100 million. Putting the criminal investigation behind it should help the struggling car parts maker find a buyer. The sale is expected to be announced by March after due diligence had to be extended in part because of the challenges of calculating the potential liabilities, people with knowledge of the talks said last month.
The $1 billion payment will include $25 million to the U.S. and $975 million in restitution that will be paid to carmakers and people who were injured, according to court papers made public on Friday. While the $25 million fine is due within a month, the company doesn’t have to pay the restitution until it’s sold because it cannot afford to pay now. Until 2015, Takata was the second largest supplier of air bags in the world.
Earlier in the day, U.S. prosecutors filed brought federal charges against three Takata executives for their alleged role in a scheme that ran for 15 years. The three — Shinichi Tanaka, Hideo Nakajima and Tsuneo Chikaraishi — are Japanese citizens and not in U.S. custody. Neither they nor their lawyers could be reached for comment.
The criminal settlement follows a 2105 agreement by Takata to pay a $70 million civil fine to U.S. regulators for providing selective, incomplete or inaccurate information about the air bags. That fine could rise as high as $200 million, if Takata doesn’t finish the recalls in three years, according to the National Highway Traffic Safety Administration.
There are 46 million recalled Takata air bag inflators in 29 million vehicles in the U.S., NHTSA said. More recalls are coming over the next three years, affecting as many as 69 million inflators in 42 million vehicles, the agency said.
Failures in Takata air bags have been blamed on the propellant in the inflator, ammonium nitrate, a chemical explosive almost as powerful as dynamite. This propellant can degrade over time depending on exposure to moisture or heat, causing the bags to deploy with so much force that they blast apart their metal casings. In the U.S., there have been at least 11 deaths and 180 injuries linked to the faulty bags, NHTSA said.
Takata has been sued by dozens of drivers and passengers claiming shrapnel injuries caused by the bags. The lawsuits claim the company knew the air bags could fail, hid negative test results and stalled recalls. There are also complaints alleging the propellant can cause excessive-force deployments — often in low-speed collisions — that don’t release shrapnel. Injuries and deaths claimed in those accidents aren’t included in the NHTSA total. Most of the shrapnel cases have settled, according to court records reviewed by Bloomberg.
The air bags have been used by more than a dozen automakers, including Honda, Volkswagen and General Motors and the recalls are scheduled through 2019. Ammonium nitrate — which other manufacturers don’t use — will also be phased out.
The recall costs alone could amount to more than 1 trillion yen, or $8.8 billion, according to Takaki Nakanishi, an analyst at Jefferies Group. Takata, the third-biggest air-bag maker in the world, started its search for a buyer last year.
(c) 2017, Bloomberg · Margaret Cronin Fisk, Tom Schoenberg