The error in Takata's recall resistance
In the world of product safety, there are two distinct groups of companies: those that get out in front of a problem and the others. The main differences involve a moral compass and money.
Takata, the Japanese airbag manufacturer that's under pressure to widen its airbag recall nationwide rather than just in high-humidity areas, appears to be one of the others -- perhaps because the cost of recalling up to 20 million vehicles is potentially staggering.
But Takata has held fast to the claim that the defect, blamed in at least five deaths, would not occur in locations other than moist, hot, coastal areas. The propellant that launches the airbags can explode, sending metal pieces flying into the interior of the vehicle. Wetness is thought to contribute to the problem.
Takata has resisted opening the door to the idea that it would have to fix airbags all over country and already is struggling to make enough replacement parts. But pressure from the government is growing as both the National Highway Traffic Safety Administration and politicians urging the company to expand its recall.
Most of the nation's product-safety system involves self-reporting, even though regulators oversee the process and can press for more action. In the early stages, that means companies that are particularly customer- and safety-conscious will announce recalls before anyone is even hurt.
But quite often, the opposite happens. After a company collects report after report of a product failing or causing harm, it issues no recall -- or one that's only limited in scope.
Companies may wait until they have sold all of the products in question before issuing a recall. Sometimes they wait a long time.
In most consumer product recalls, only a small percentage of consumers who own the product typically bother to comply with the recall, which keeps the recall's cost down. If a recall is conducted early, while products are still in the warehouse or on shelves, the manufacturer has to either eat the inventory or repair far more products than if it had waited for them to be sold.
It can make financial sense for many companies to delay issuing a recall, even if that means playing fast and loose with customer safety.
But when it comes to auto-related recalls, the game is decidedly different. Typically, the inventory involved is already distributed. The repairs costs are far higher, and so is consumer compliance.
For one thing, the owners of affected vehicles are easy to find because everyone gets a warranty, and vehicles and their owners can be tracked through registration information.
Takata need not look back too far to see how costly it can be to not aggressively pursue a recall. Think about how Toyota (TM) tarnished its shiny brand after it became clear how long it failed to act on reports its vehicles could accelerate without warning. On top of slowed sales, Toyota ended up paying $1.2 billion to the U.S. government over how it handled those recalls.
Takata can certainly can see the numbers adding up. Replacing a single auto airbag can cost $1,000. With the driver's-side bag the only one involved at this point, the replacement cost is relatively small in the big picture. Liability costs, however, can be huge.
The company has already set aside about three-quarters of a billion dollars to cover potential airbag-related recall costs. Acknowledging that the defect can occur in any geographic area will most certainly expand that cost. And now, a grand jury investigation is underway into Takata's conduct that could cost it even more.
When corporations try to delay recalls, that might lighten the load in the short term, and on occasion a less-than-forthcoming company might win. But with so many consumers potentially affected and the pressure rising so quickly, Takata appears to be backed into a corner.
