What Does Takata Bankruptcy Mean For Deadly Airbag Recall?

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After months of speculation, embattled auto parts maker Takata has officially filed for bankruptcy following a massive shrapnel-shooting airbag recall affecting more than 42 million vehicles and the legal fallout that followed. 

The Associated Press reports that Takata filed for bankruptcy protection in Tokyo and the U.S. Monday, paving the way for the company to sell most of its operations to Key Safety Systems.

The process, the company says, is the only way it will be able to continue producing replacement airbag inflators for the more than 65 million to 70 million recalled airbags that have been linked to at least 11 deaths and hundreds of injuries.

For those unfamiliar, Takata’s airbag inflators use an ammonium nitrate propellant. If the device is exposed to humidity and related temperature swings over a period of time the chemical can combust violently, rupturing the inflator when the airbag deploys in the event of a crash.

What’s The Future Hold?

Key Safety Systems (KSS) announced Monday that it worked with Takata on the plan that will see the company pay $1.6 billion for Takata’s global assets and operations.

Under the agreement, KSS will acquire substantially all of Takata’s assets, except for certain assets and operations that relate to Takata’s manufacturing and sale of phase-stabilized ammonium nitrate. Instead, the phase-stabilized ammonium nitrate business is expected to be run by a reorganized Takata until it is wound down.

Bloomberg reports that the deal excludes any liability related to the recall.

KSS says that by purchasing nearly all of Takata’s business, it will create a leading global safety supplier.

“KSS is the ideal sponsor as we address the costs related to airbag inflator recalls, and an optimal partner to the company’s customers, suppliers and employees,” Shigehisa Takada, Chairman & CEO of Takata, said in a statement.

What About My Car?

According to the National Highway Traffic Safety Administration, so far 16 million airbags have been repaired, leaving nearly 50 to 55 million airbags in need of replacement.

Takata executives tell the AP that filing for bankruptcy and facilitating a sale to KSS was the only way the company would be able to continue producing replacement airbags for affected vehicles.

“We’re in a very difficult situation, and we had to find ways to keep supplying our products,” CEO Takada told the AP. “As a maker of safety parts for the automobile industry, our failure to maintain a stable supply would have a major impact across the industry.”

As part of its agreement with KSS, Takata will continue making replacement inflators to be used by the 19 carmakers affected by the recall.

It is unclear if actual vehicle owners will be affected by the bankruptcy and sale of Takata, as federal regulators have already created a system dictating the replacement of the airbag inflators.

Related: Why Is Subaru Telling Me To Keep People Out Of The Passenger Seat For The Next Year?

NHTSA issued a consent order in Nov. 2015 that outlined the handling of the recall, breaking repairs into prioritization groups. The groups were created [PDF] based on risk factors such as age, geography and climate, inflator position — whether it was in the driver’s side or passenger side — and precession of two recalled inflators.

It’s possible that vehicle owners won’t see any kind of delay in repairs as many automakers have contracted with other suppliers, such as Autoliv and Daicel Corp., for replacement parts.

We’ve reached out to NHTSA for comment on the bankruptcy and possible consequences for consumers.

The Legal Side

The AP reports that the $1.6 billion that Takata stands to make from its sale to KSS will be used to satisfy Takata’s settlement of criminal charges with the U.S. government and reimburse automakers affected by the recall.

However, these funds are not expected to cover the entire replacement process, meaning the automakers must foot the rest of the bill.

“It’s likely every automaker involved in this recall will have to subsidize the process because the value of Takata’s assets isn’t enough to cover the costs of this recall,” said Karl Brauer, executive publisher of Kelley Blue Book and Autotrader.

This also means that Takata likely won’t have enough funds to cover all litigation related to the recall. The AP notes that Takata has already earmarked $125 million for victim funds.

However, experts told the AP earlier this month that victims stand to receive $0.05 to $0.10 to dollar for what they could have received if Takata was a financially strong company.