In Honda’s Rebuke of Takata, a Rare Move for Business Partners in Japan

TOKYO — When a car manufacturer publicly questions the honesty of a business partner that supplies it with vital safety equipment, it is a sure sign that the relationship is in trouble.

When such a high-profile slap-down happens in Japan, where longstanding and mutually protective ties between manufacturers and their suppliers are a central feature of business, it stings especially badly.

On Tuesday, the airbag maker Takata received just such a slap.

The Honda Motor Company dropped Takata as a supplier of airbag inflaters, saying that Takata had “misrepresented and manipulated” data from safety tests. Defective Takata inflaters are at the center of the largest automotive recall in history, linked to eight deaths — all in Honda vehicles — and more than 100 injuries.

Honda is Takata’s biggest customer, and has been buying its airbags since Takata started producing them in the 1980s. It is also a part owner: Honda holds 1.2 percent of Takata’s stock, making it one of the company’s largest single shareholders.

Such cross-shareholdings are common in Japan, encouraging loyalty between suppliers and their customers further along the manufacturing chain. At its best, the practice can foster beneficial trust between companies. At its worst, critics say, it can lead to collusion and mutual back-scratching.

“It’s a real crossing of the Rubicon in the relationship sense,” Nicholas Benes, a Tokyo-based expert on Japanese corporate governance, said of Honda’s decision to distance itself from Takata so openly and bluntly. “It’s a sign of increased awareness at Japanese companies of the problems you can get into with shareholder lawsuits, product liability lawsuits and so on.”

A Honda executive vice president, Tetsuo Iwamura, suggested that the automaker was reviewing its shareholder relationship with Takata given Takata’s reduced role as a Honda supplier. But he emphasized that Honda had not made a final decision.

“Generally speaking, we consider the size of our dealings in the medium to long term when we hold shares” in other companies, Mr. Iwamura said in response to questions about Takata at a briefing after Honda announced its quarterly earnings Wednesday.

Honda said it expected to complete the shift to other airbag producers by March. The company had already been cultivating new suppliers to meet demand for replacement inflaters in millions of recalled vehicles. But it still relies on its longtime partner: So far this year, about 25 percent of new Honda vehicles have been fitted with airbags with inflaters made by Takata, the carmaker said.

Those inflaters are of a relatively new type, containing a drying agent designed to prevent humidity from building up inside them, something some experts say can destabilize the ammonium nitrate in the airbag’s inflater and cause it to rupture. But Honda said it had decided to move away from Takata’s ammonium nitrate inflaters altogether.

Takata will continue to supply Honda with other safety equipment, including seatbelts. But airbags are crucial to its business, accounting for about 40 percent of sales. Analysts said its problems would deepen if other customers followed Honda’s lead, and Takata’s share price, already battered by the recall crisis, fell a further 13 percent on Wednesday.


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“This is the kind of step that, once one company takes it, others could pile on and pretty soon the whole Takata ship sinks,” Mr. Benes said.

Japanese carmakers have introduced more flexibility into their supply chains over the last decade or so, replacing fixed purchasing quotas with competitive bidding and widening their networks to include more non-Japanese suppliers. That, some experts say, has made them less protective of favored suppliers, despite continued cross-shareholding.

Honda had nonetheless stood by Takata as reports of exploding airbag inflaters accumulated over the years. The first known airbag rupture was in a Honda Accord more than a decade ago. Both companies wrote off the incident, in which the airbag exploded, sending metal fragments shooting into the vehicle, as an anomaly. Honda has been recalling Takata-equipped cars since 2008. But it was only when Congress convened hearings last year that some distance appeared between the two companies. With Takata still resisting a nationwide recall in the United States, Honda said then that it would proceed on its own and use alternate suppliers if needed.

This year, the airbag troubles and other quality problems at Honda had grown large enough that they are widely thought to have been a catalyst for a management shake-up that resulted in the replacement of its chief executive.

For Takata, Honda’s decision to drop its airbags only adds to the pressure. On Tuesday, Takata was hit with a $70 million penalty by United States regulators for failing to promptly disclose defects in its airbags — a penalty that could grow to $200 million if Takata does not live up to the terms of a consent order.

At a news conference in Tokyo on Wednesday, Takata’s president and chairman, Shigehisa Takada, seemed to frame the company’s problem as one of public perception rather than defective products.

He reiterated the company’s view that its inflater technology is fundamentally safe, disputing concerns that the ammonium nitrate propellant might have been the root cause of the problem. The consent order requires that the company phase out ammonium nitrate inflaters unless it can prove they are not a hazard.

“We believe our products are safe,” he said. “However, the fact is that end users, automakers and the authorities have various concerns.”

Neither Honda nor the safety agency disclosed what data they believe was manipulated by Takata. On Tuesday, Honda said it had alerted federal regulators to documents containing suspected problems and had ordered third-party auditing of all of Takata’s test data. Takata’s senior vice president for global quality assurance, Hiroshi Shimizu, denied on Wednesday that company engineers had manipulated data.

Takata’s biggest airbag market is the United States, which accounts for about 37 percent of its net sales. Until it is able to develop and mass produce new inflaters that do not use ammonium nitrate, its business there is essentially halted by the consent order, said Takaki Nakanishi, an auto analyst and chief executive of Nakanishi Research Institute.

Honda’s explicit rebuke was nonetheless a significant gesture, Mr. Nakanishi said. Honda is “very frustrated with Takata,” he said, but the scale of the safety crisis meant that conveying that anger privately was no longer an option: Honda also needs to separate itself from its Takata in the eyes of the public.

“Honda wants to reassure its customers that its vehicles are safe,” Mr. Nakanishi said. “It wants to tell its customers in the clearest way possible, ‘We’re no longer using Takata inflaters.’”

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