Takata Says no to Victims’ Compensation Fund

7/12/2015

Embattled Japanese airbag manufacturer Takata has roiled some lawmakers by announcing that the company will not set up a victim’s compensation fund similar to that for the General Motors’ ignition switch recall. Takata’s North American senior vice-president Kevin Kennedy made the announcement in a letter penned to Senator Richard Blumenthal (D-CT), who had strongly advised Kennedy to establish such a fund during a June 23^rd, Senate Commerce, Science, and Transportation Committee hearing. At that time Kennedy admitted that he could not commit to such a fund; however company CEO Shigehisa Takada, in his first press briefing as CEO days later, told reporters that he was considering the idea. Blumenthal instructed Kennedy to return to Washington within two weeks with a definitive answer on the fund. In the letter, dated July 7^th, Kennedy writes, “Takata has already resolved a number of claims involving air bag ruptures, and we intend to continue to discuss settlement of claims in appropriate cases going forward. At the present time, given the limited number of claims filed and the MDL procedures in place that permit the efficient coordination of related claims, Takata believes that a national compensation fund is not currently required.” So far, 8 deaths, including 7 in the U.S. and over 100 injuries have been attributed to the faulty airbags, in which a defect in the inflator’s propellant mechanism apparently caused by excess humidity can cause over-aggressive inflation of the airbag sending shrapnel into the vehicle’s cabin.

The letter incensed Blumenthal, and likely others in Washington as well. Responding to the letter, the Senator said in a statement, “I am astonished and deeply disappointed by Takata’s refusal to establish a victim’s compensation fund.” In the letter, Kennedy referred to ongoing litigation, writing that the company will prefer to settle cases on an individual basis, however, he did not completely rule out the idea of a compensation fund in the future. Kennedy wrote, “Takata’s senior management has given the idea of a compensation fund careful consideration, and we will continue to evaluate the possible benefits of such a mechanism in relation to the personal injury lawsuits involving air bag ruptures and the multi-district litigation proceedings now pending in federal court in the Southern District of Florida.” National Highway Transportation Safety Administration (NHTSA) chief, Michael Rosekind will be in Florida this week holding events to illustrate the need for drivers to check if their vehicles are affected by the recall. With the recent additions of over 4 million Honda vehicles as well as more Fiat-Chrysler recalls attributed to Takata, experts now estimate over 32 million vehicles in the U.S. contain the potentially-faulty airbags, with up to 50 million vehicles affected worldwide. Rosekind and others believe that places like Florida, with high levels of humidity and moisture, render the airbags more vulnerable to the defect.

Blumenthal did not take comfort in Kennedy’s rhetoric that it was “unacceptable to us for even one of our products to fail to perform as intended.” The Senator blasted the company’s management, saying “Takata is apparently unwilling to acknowledge its responsibility for these tragic deaths and injuries, or do justice for victims and their loved ones. I will press Takata to reconsider this callous misjudgment, and do right by the innocent victims of its harm.” In addition to the NHTSA’s direct authority over the recall, thought to be the largest in auto history, the Justice Department is conducting an ongoing probe of the company’s handling of the airbag issue. Rosekind is also considering holding a hearing with Takata and the 11 auto manufacturers currently affected by the recall later in the year. The NHTSA conducted its first public safety hearing in three years earlier in the month, announcing that it will sanction Fiat-Chrysler for its slow and mismanaged handling of their multitude of recall issues. General Motors is also facing potential criminal charges as the result of a Justice Department investigation over its failure to disclose the massive ignition switch recall, both before and after the company’s 2009 bankruptcy.

Takata agreed to a Consent Order in May, which is an official agreement to cooperate with the NHTSA, after several months of denials and lukewarm recall efforts. From February until the agreement was reached, Rosekind fined the company $14,000 per day for failing to negotiate with the regulator. Currently, the NHTSA has the authority to fine companies up to $35 million, although Rosekind has asked Congress for more sanctioning authority. GM has received the maximum NHTSA penalty in spite of establishing a compensation fund of over $600 million. Fiat-Chrysler could receive over $700 million in fines, the $35 million maximum for each of the multitude of recalls plaguing the company. Kennedy had admitted to Blumenthal last month that the establishment of a fund would likely uncover additional incidents related to the defect. Despite the Consent Order, the recent defiance of Congress follows the company’s announcement last month that it will continue to use the chemical compound under scrutiny as the cause of the defect, ammonium nitrate. Takata is the only major airbag manufacturer to use ammonium nitrate as its propellant. Although Takata is a publicly traded company, members of the founding family or entities involving family members hold over 60 percent of the company’s shares, including Takada, the grandson of the company’s founder.

Sources:

The Detroit News – David Shepardson

The Hill – Keith Laing

Wall Street Journal – Mike Spector