The Takata Recall: What’s at Stake for Automakers, Regulators and Consumers

airbag

The recent uproar over the recalls by 10 major automakers of 7.8 million vehicles fitted with defective airbags made by Japanese supplier Takata has turned the spotlight on the U.S. vehicle safety regulator, the National Highway Traffic Safety Administration (NHTSA). The regulator has been accused of not doing enough to ensure vehicle safety and putting too much trust in self-regulation by automakers. The Takata airbags are blamed for causing three deaths and more than 100 injuries as they exploded and released shrapnel in high humidity conditions. The Takata episode is a wakeup call for policy makers to strengthen the NHTSA with more budget support and higher safety standards, and for automakers, experts say.

“Congress could certainly take action in changing NHTSA’s role and the regulations,” said Wharton management professor John Paul MacDuffie, who is also director of the Program on Vehicle and Mobility Innovation at Wharton’s Mack Institute for Innovation Management. “It wouldn’t be able to keep up with all this with its own staff and its own investigations,” he added, suggesting that the NHTSA could do with more support.

“This is becoming a year of recalls,” Twitter  said Micheline (Micki) Maynard, director of the Donald W. Reynolds Center for Business Journalism at Arizona State University. She noted that automakers have recalled 56 million vehicles so far this year in the U.S., and that it is a reflection of regulatory lapses. “We’re finding out that the process NHTSA follows to process defects and act on defects doesn’t really work very well.”

MacDuffie and Maynard discussed the fallout of the Takata recall for automakers, regulators and consumers on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111.

MacDuffie said the recalls reflect past budget choices, as well as views on how heavily to regulate the auto industry and how much to trust automakers to take the right steps in doing their own investigations. Added Maynard, a former Detroit bureau chief at The New York Times: “[The NHTSA] simply [doesn’t] have a big enough engineering and inspection staff. That takes money. Congress has to allocate [more] money to NHTSA.” One other fallout could be class action suits by vehicle owners and actions by state Attorneys General, she noted.

Regulatory Response

For now, the NHTSA appears to be on top of the Takata issue. In a consumer advisory note last week, it urged vehicle owners to act immediately on recall notices over the past 18 months to replace defective Takata airbags. The recalls cover 7.8 million vehicles made between 2000 and 2008 by Detroit’s Big Three automakers (General Motors, Ford and Chrysler); Japan’s Honda, Toyota, Mitsubishi, Subaru, Nissan and Mazda, and Germany’s BMW. “The message comes with urgency,” the NHTSA said, especially for owners of vehicles in high humidity regions in areas including the Southern states, Guam and Puerto Rico. Congressmen have said the recall should be nationwide and not be limited to high humidity areas.

“This is becoming a year of recalls.”–Micheline (Micki) Maynard

That urgency has come about after Takata’s exploding airbags were suspected to have caused the death of a Florida woman earlier this month. If confirmed, it would be the fourth death linked to Takata’s airbags. As it happens, the NHTSA had launched an investigation into Takata’s malfunctioning airbags after six incidents in Florida and Puerto Rico, and that is continuing. Takata said on its website that it is investigating the causes for the airbag explosions, especially the role of humidity in the malfunction.

As Congress and regulators respond to the Takata episode, they are unlikely to throw out the baby with the bathwater, according to MacDuffie. He said that since their introduction in the U.S. in 1987, airbags are credited with saving about 35,000 lives. “So the effort will be made to fix airbags rather than move away from airbag technology,” he added. He pointed also to big improvements underway in vehicle safety technology, with automakers using advanced electronics, sensors and software to avoid accidents.

The Safety Paradox

Those efforts in improved vehicle safety sit uncomfortably with the wave of vehicle recalls, said MacDuffie. “In many ways the quality of vehicles has been going up steadily. There’s a whole set of problems with cars that people don’t have any more,” he added. “So we have this paradox of quality going up and yet, more recalls than ever [before].”

Most of the Takata airbag explosions involved passengers in front seats. Here, Maynard noted that regulators years ago required that small children be secured with seat belts in the rear seat. “Imagine if kids were still riding in the front seats, and children were in the way of airbags,” she said. “There is a track record of the government acting to protect people’s lives.”

As for the recent rash of recalls, Maynard attributed some of that to proactive steps by automakers. “It’s not like all of a sudden all cars went bad,” she said. “You might as well throw it all in when it is a recall atmosphere.” It helps that no longer is there a stigma attached to vehicle recalls, said MacDuffie. Maynard advised vehicle owners to check if their vehicles are covered by the recalls “and not panic if they hear that something else is being recalled.”

“The effort will be made to fix airbags rather than move away from airbag technology.”— John Paul MacDuffie

Takata’s Problems

MacDuffie traced Takata’s problems to the “complex technology” involved in airbags. “[Airbag technology] really is rocket science in the sense that we are dealing with explosions and the science of explosives,” Twitter  he said. The early generation of airbags had explosives that left toxic fumes, and Takata fixed that by switching to different kinds of explosives, he noted.

The latest generation of airbags is not supposed to explode if humidity enters airbag injectors under “ideal parameters,” but problems could occur during manufacturing, subsequent damage and leakage, said MacDuffie. “What they are discovering … is that there’s perhaps more of this problem of humidity getting into the injector than they thought.”

MacDuffie noted that Takata was originally a textile manufacturer that was encouraged by Honda to become a supplier of auto components, and went on to make for itself a reputation as an innovator. But the latest problems and reports of problems with Takata’s manufacturing operations in Mexico have heightened worries, he said. “The more we hear about Takata’s lapses in manufacturing, the greater the concerns.”

Meanwhile, Takata has a supportive environment in its home country. “[Japanese automakers] have shown a willingness to work very hard with Takata to solve the problem,” said MacDuffie. “That is the Japanese norm with supplier relations.” As it happens, automakers have limited options in sourcing airbags. MacDuffie noted that worldwide there are only three major airbag manufacturers — Takata, Autoliv of Sweden and TRW of Livonia, Mich. — in addition to a few small players.

Japanese Quality in Question

Will the Takata issue boomerang on the popularity of Japanese cars among U.S. consumers? Maynard didn’t think so. She noted that auto customers are a loyal lot, and that imported cars account for more than half of all cars sold in the U.S. “[Japanese automakers] might have been a couple of yards ahead of Detroit over the years; maybe now they are even,” she said. “But I don’t think it has put them behind in any way.”

All the same, Maynard felt Japanese automakers will suffer some consequences from recent events, including Toyota’s massive recalls in 2009-2010 caused by accelerating pedals. “The combination of the Toyota recalls plus this [Takata case] has dented the Japanese bullet-proof quality impression,” she said. MacDuffie agreed: “There have been a few signs in Japan — not just in [the] automotive [industry] — of some slipping of the very high levels of quality that had been taken for granted. So [there will be] some soul searching in Japan about that.”

“We have this paradox of quality going up and yet, more recalls than ever [before].”–John Paul MacDuffie

Higher Stakes for All

The Takata case also highlights how the stakes have gotten higher for vehicle makers, their component suppliers, regulators and consumers. The volume of recalls, for instance, could get increasingly bigger in the future. “The fact that some parts are used in lots and lots of vehicles more than ever means that when you recall, the scope can be massive,” said MacDuffie. “The complexity of managing global supply chains and production facilities all over the world has risen exponentially for all these auto companies.” Staying on top of all that will be a huge challenge going forward for auto companies, he added.

Among other issues, regulators will have to deal with determining the safety of cars over their useful life. “Cars do stick around for a long time,” he said. The recalls earlier this year by General Motors over faulty ignition switches revealed that many of the cars involved in accidents were owned by young people as used cars or handed down by family members, he added. “The issue of how long does the car stay safe given how long it is in use comes into focus more as a policy issue for regulators.”

Maynard felt the fact that the recent recalls cover vehicles made in any year, including some newer models, have increased consumers’ concerns. “People are looking at cars and thinking, ‘What is going to go wrong in 2020 or 2021?'” she said. “Cars have a thousand parts, and you really don’t know what’s going to hold up and what’s not going to hold up…. At what point do I need to start worrying about how good my car is?”

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