What Caused Takata’s Airbag Problems?

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John Paul MacDuffie and Richard Dasher on Takata's Airbag Problems

Defective manufacturing practices, an unstable chemical, manipulated test data and flawed quality control processes are among the problems that plague Takata, according to three investigations into the Japanese airbag maker that is facing mounting recalls of its products. As Takata grapples with the costs of recalls and replacements, automakers with whom it previously enjoyed close ties are shying away from its products.

Premature rupturing of Takata airbags has thus far caused 10 deaths, including nine in the U.S., and more than 100 injuries worldwide. On Tuesday, February 23, a group of 10 automakers that conducted a yearlong review into the Takata issue disclosed that the airbag explosions were caused by exposure to humidity, design and manufacturing problems, and the use of the volatile chemical ammonium nitrate. The automaker panel, which called itself the “Independent Testing Coalition,” was made up of representatives of BMW, Fiat-Chrysler, Honda, Ford, General Motors, Mitsubishi, Mazda, Nissan, Subaru and Toyota. They commissioned Orbital ATK, a defense contractor in Arlington, Va., that makes rocket engines, to conduct the tests.

Also last Tuesday, a report by the Senate Committee on Science, Commerce and Transportation said that Takata apparently manipulated test data and did not do enough to address safety concerns. That was an addendum to an earlier report from June 2015 on the Takata airbag crisis. Takata conducted itself in that manner even after the company had been fined more than $200 million and recalls of its airbags had begun, an NPR report said.

Takata’s own independent, third party investigation also suggested many quality improvements. The panel said in its report on February 3 that among other areas, “Takata needs to improve in three broad categories: (1) addressing quality-related concerns; (2) ensuring quality in Takata’s design and manufacturing processes; and (3) promoting quality through improved management practices.”

“It’s not surprising that companies want to block out any evidence that [their] deeply held beliefs in the rightness of what they were doing were wrong, as well as wanting to hide wrongdoing.” John Paul MacDuffie

Wharton management professor John Paul MacDuffie pointed to a fundamental problem in Takata’s use of ammonium nitrate in cartridges within its airbags. The cartridges lacked a material to absorb moisture, which led to them inflating prematurely and exploding, especially in higher levels of heat and humidity.

Many of Takata’s competitors decided not to use ammonium nitrate because of the risks it involved. However, Takata was confident about its engineering and manufacturing expertise and in being able to tackle any quality problems that arose and make improvements, said MacDuffie. Therein lies the genesis of Takata’s problems, including possibly leading it to manipulating test data, he suggested.

“You have the challenge to that engineering culture and confidence as well as the risk of embarrassment and criminal prosecution when the problems begin to emerge,” MacDuffie said. “It’s not surprising that companies want to block out any evidence that these deeply held beliefs in the rightness of what they were doing were wrong, as well as wanting to hide wrongdoing.”

Richard Dasher, professor of electrical engineering at Stanford University and director of its U.S.-Asia Technology Management Center, questioned the relationship between Takata and automakers, especially since the problems with the airbags began some 15 years ago.“It is amazing that the automakers did not enforce more changes in Takata’s way of doing product development,” he said. “If Takata indeed did a cover-up of test results, it could face criminal penalties,” he added.

Dasher also noted that Takata was getting too close for comfort with automakers. “You are seeing close [and] personal relationships that exist between suppliers and manufacturers,” he said. “[It became] something where nobody wanted to admit something was wrong.”

MacDuffie and Dasher discussed the Takata recall and the difficulties that lie ahead on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

A Broken Safety Culture

The Senate Committee, which relied extensively on internal communications records at Takata, is damning in its conclusions. It found “at the very least, a failure by Takata to ensure the integrity of its testing of inflators or to respond appropriately to ethical concerns raised to senior Takata personnel.” It added that “these apparent testing manipulations and the failure by Takata to address them” raise concerns about the safety of all Takata airbag inflators that have ammonium nitrate. The documents it studied reveal “a broken safety culture” at the company, the committee report said.

“Even if Takata and the automakers divide the costs [of the recalls and replacements], it is going to be extremely painful.” –Richard Dasher

Amid calls from lawmakers to step up efforts to recall defective Takata airbags, the National Highway Traffic Safety Administration (NHTSA) is considering expanding its recalls from more than 28 million thus far to include another 70 million to 90 million inflators with ammonium nitrate, according to a Reuters report. The recalls would climb to that number if all automakers that used Takata airbags in any of their vehicles issued recalls, said MacDuffie. Takata made between 260 million to 285 million airbags worldwide in the past 15 years, and half of those are in U.S. vehicles, he added.

MacDuffie explained why such recalls tend to involve large numbers of vehicles. He said Japanese automakers tended to work with a small number of suppliers, a practice rooted in the “keiretsu” system of crossholdings in supplier companies. Over the years, U.S. automakers also switched to that model, which meant a few suppliers won contracts with huge volumes. Car makers also build several models on so-called “platforms,” each of which have common design and engineering specifications across several models. That is why recalls like the one Takata is facing are big even though the underlying issue many be minor, he said.

Meanwhile, political pressure is also building on Takata. U.S. Senators Edward Markey and Richard Blumenthal described the additional air bags as “ticking time bombs,” the NPR report said. “NHTSA is coordinating and accelerating the recalls to ensure that every American vehicle has a safe air bag as quickly as possible,” the agency noted in a status update on the recalls on its website.

Recall Costs and Complications

Dasher pointed to “the big cost” of the recalls and the replacements, especially if they expand to up to 90 million vehicles. “Even if Takata and the automakers divide the costs, it is going to be extremely painful. Takata has to have some sort of a bailout in order to stay afloat.”

MacDuffie said another complication was that some of the replacement inflators Takata has been using continue to have ammonium nitrate. That is because Takata has for a long time claimed that the problems are with manufacturing and with moisture getting in – not with the propellant in the airbags, he explained.

MacDuffie noted that regulators have told Takata not to sell any new products with that propellant and may be told not to use it in replacements, either. Those obstacles would slow down Takata’s ability to produce the replacements in the volumes that are needed in the recalls. Already, Honda and Nissan have already said that they would not use airbags made by Takata for replacements, and instead source them from other companies, added Dasher.

Manufacturing capacity in the airbag industry will be a constraint in meeting the recall requirements, said MacDuffie. Takata and its competitors have added manufacturing capacity, but the latter have been asked to produce inflators for the recall repairs even as they have been getting new orders from automakers. “It is not easy to make a whole lot manufacturing capacity for these very technically complex products, where there are a lot of safety procedures even in the manufacturing process, because you can have explosions in the airbag plant as well,” he added.

The recall and repair process is also complex and fraught with difficulties, according to MacDuffie, and he listed three issues. First, a fundamental question is whether the propellant, ammonium nitrate, is too dangerous for this purpose, he said. He noted that most of Takata’s competitors don’t use that chemical. A second question is over the inclusion of a desiccant or a moisture-absorbing chemical. (That is similar to the small sachets included in the packing of products that arrive in the mail to absorb moisture during shipping.) While most of Takata’s models of airbags included the desiccant, some did not, and those models are particularly at risk, MacDuffie added.

“It does give [the Japanese auto industry] a black eye.” –Richard Dasher

Finally, there were periods in Takata’s manufacturing process where substandard chemicals were used or where materials were exposed to moisture because they weren’t in an air-conditioned, humidity-controlled environment, said MacDuffie. “Tracking down which products were made at the times that the manufacturing conditions were wrong is also tricky.”

A Black Eye

Among the casualties is the Japanese auto industry’s reputation, marred by the Toyota recalls in recent years and the Takata recall. “It does give them a black eye,” said Dasher. He said it appears that Takata’s product development and quality assurance and safety teams perhaps did not communicate well enough between themselves.

MacDuffie noted that Takata is a family owned company, and that its founder, Takezo Takada, was a legend in Japan. Takada founded his company in 1933, making lifelines for parachutes and other products, and moved on to make seat belts in the 1950s, followed by airbags in 1988. Now, Japanese executives are uncomfortable with the intense public scrutiny Takata is getting at the hands of the U.S. media, he added.

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