On last Friday, Honda Motor Co Ltd (ADR) (NYSE: HMC) announced the plan to recall 21 million more vehicles worldwide to fix defective airbags supplied by the equipment manufacturer Takata.
Honda, the hardest hit, sees light at the end of the tunnel, however, because it has set aside enough cash to cover the replacement of air-bag inflaters that will have to be recalled over the next several years.
Takata-made airbag inflaters can explode with too much force when the airbag deploys in a crash, sending shrapnel shooting into a vehicle’s cabin. The fault has been blamed for at least 11 deaths worldwide and more than 100 injuries.
Replacing tens of millions of Takata-made inflaters is a costly undertaking for carmakers, about a dozen of which have been caught up in the crisis. Honda reported a rare quarterly loss on Friday because of expenses stemming from the recall.
For the year ended in March, Honda posted 344.5 billion Yen in net profit, a 32% decline from a year earlier. Its full-year revenue was 14.6 trillion Yen. In early May, the U.S. National Highway Traffic Safety Administration ordered auto makers to recall up to an additional 40 million Takata inflaters in phases through December 2019.
Honda said it had set aside an additional 267 billion yen to cover recall-related costs which brought its total recall expenses for the financial year that ended in March to 436 billion Yen. The burden more than halved its net profit to 344.5 billion Yen for the year.
Vehicle producers hope to recoup a portion of their costs from Takata, but how much they will be able to recover remains unclear. The amount is subject to negotiation, and Takata’s ability to pay is in doubt.