In the late 1990s, GM got an unexpected and enticing offer. A little-known Japanese supplier, Takata, had designed a much cheaper automotive airbag. So GM turned to its airbag supplier, Autoliv, and asked it to match the cheaper design or risk losing the automaker’s business. But when Autoliv’s scientists studied the Takata airbag, they found that it relied on a dangerously volatile compound in its inflater, a critical part that causes the airbag to expand. In spite of the report GM chose the Takata product.

The result of failed quality control: Takata, behind the biggest safety recall in automotive history, is filing for bankruptcy, says Industry Week (June 15, 2017). Its liabilities exceed $9 billion. Takata’s faulty air bag inflators have been linked to at least 17 deaths worldwide. Mounting liabilities from having to replace an estimated more than 100 million air bags force Takata to seek an acquirer that could get it through the costly restructuring process.

Honda, a Takata shareholder and the auto-parts maker’s largest customer, first started recalling Accord and Civic models in 2008. The supplier’s air bag inflators use a propellant that can be rendered unstable after long-term exposure to heat and humidity, leading them to rupture and spray deadly metal shards at vehicle occupants.

More than a dozen automakers have recalled vehicles since, include VW, Toyota and GM. Takata in January agreed to pay $1 billion to U.S. regulators, consumers and carmakers. The settlement includes a $25 million criminal fine, $125 million in victim compensation and $850 million to compensate automakers who have suffered losses from massive recalls.

 

Classroom discussion questions:

  1. Should automakers assume some of the blame for this supply chain problem?
  2. Compare this to other recent auto industry quality and ethical blunders.