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Toyota boycott compounds Takata woes

Toyota boycott compounds Takata woesTakata faced fresh investor questions about its prospects to weather an escalating safety scandal after Toyota, the world’s biggest car group, joined the boycott of its airbag inflators.

Yoichiro Nomura, Takata’s chief financial officer, insisted its financial health remained robust even as the Japanese car component manufacturer reported a quarterly loss of $71m and slashed its annual guidance on mounting recall costs.

“I can clearly say that we are OK in terms of financing,” Mr Nomura said, pointing to its ability to generate cash flows.

Takata’s shares have fallen 40 per cent this week after a US safety regulator said on Tuesday it believed the company’s use of an ammonium nitrate-based propellant in its inflators was a factor in the equipment exploding. These ruptures have been linked to eight deaths worldwide and at least 100 injuries.

“Investors are completely lost now since we don’t know where Takata’s business is going,” said Naoki Fujiwara, a Tokyo-based fund manager at Shinkin Asset Management.

“Unless Takata can find new channels to sell its products, the company’s survival is at risk,” Mr Fujiwara added.

For the July to September quarter, the company reported a net loss of Y8.6bn ($70.5m) compared with a profit of Y3.4bn in the same period a year earlier. It also lowered its net profit guidance to Y5bn for the fiscal year through March 2016 from its earlier projection of a Y20bn profit.

The loss came after the company booked a special loss of Y17.2bn to pay for recall-related costs including legal and investigation fees and costs to manufacture replacement inflators. Takata also accounted for a $70m fine it has agreed to pay US National Highway Safety Administration.

For now, its equity ratio — a measure of capital strength — remained relatively robust at 29 per cent although its cash amount had fallen nearly 20 per cent from six months ago.

Mr Nomura said the company was not holding any talks with automakers or banks for financial assistance.

Its outlook darkened further after Akio Toyoda, Toyota’s chief executive, said the carmaker would no longer use Takata’s inflators containing ammonium nitrate. Toyota is one of the biggest customers for Takata after Honda, which this week became the first Japanese carmaker to say it would stop using the company’s inflators in new vehicles.

Following an investigation into Takata, NHTSA has ordered the world’s biggest vehicle recall to replace the company’s inflators containing ammonium nitrate. It affects 19m vehicles.

Echoing the position taken by rival carmaker Mazda, Mr Toyoda left open the possibility of using Takata’s inflators should they contain a different chemical.

Among other automakers, Fiat Chrysler has switched to using inflators made by rival TRW, according to a person familiar with the matter. Mitsubishi Motors has also turned to non-Takata suppliers for vehicles involved in the recall, and is considering whether to do the same for new cars.

Mr Nomura said it has not yet evaluated the impact of these moves for the next financial year, but insisted the decisions did not affect other parts of its airbag business, which as a whole generates nearly 40 per cent of group revenues.

“Companies have said they are not using inflators containing ammonium nitrate. That’s it. They didn’t say airbags,” Mr Nomura said. The company is planning to use in its inflators a different chemical, which it has already started producing in small amounts in Europe.

While Honda and other automakers may still continue to buy modules and other car components from Takata, analysts say the loss of its inflator business would impact the bottom line. Inflators have higher profit margins than other parts such as seat belts and steering wheels due to the higher technological barriers to entry.

Source: Financial Times
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