November 4, 2015 by Canadian Underwriter
The United States’ Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) announced on Tuesday that it has imposed the largest civil penalty in its history – US$70 million payable in cash and an additional US$130 million if Takata fails to meet its commitments or if additional violations are discovered – in connection with the massive Takata Corporation air bag recall.
In May, Tokyo, Japan-based Takata announced the recall of nearly 34 million defective air bag inflators, including 1.2 million in Canada. The initial recall number was later modified to about 23.4 million.
The US$200 million penalty was part of two orders issued by NHTSA Besides imposing the largest civil penalty in NHTSA’s history for Takata’s violations of the Motor Vehicle Safety Act, the orders for the first time use the administration’s authority to accelerate recall repairs to millions of affected vehicles. The actions also prioritize recalls so the greatest safety risks are addressed first, and set deadlines for future recalls of other Takata inflators that use a suspect propellant unless they are proved to be safe, Takata said in a press statement.
“For years, Takata has built and sold defective products, refused to acknowledge the defect and failed to provide full information to NHTSA, its customers, or the public,” said Transportation Secretary Anthony Foxx in the statement. “The result of that delay and denial has harmed scores of consumers and caused the largest, most complex safety recall in history. Today’s actions represent aggressive use of NHTSA’s authority to clean up these problems and protect public safety.”
The consent order issued to Takata imposes the record civil penalty of US$200 million and requires the company to phase out the manufacture and sale of inflators that use phase-stabilized ammonium nitrate propellant, which is believed to be a factor in explosive ruptures that have caused seven deaths and nearly 100 injuries in the U.S. The consent order also lays out a schedule for recalling all Takata ammonium nitrate inflators now on the roads unless the company can prove they are safe or can show it has determined why its inflators are prone to rupture.
Takata said in a press release that it is “committed to being part of the solution” and its U.S. subsidiary has agreed to pay the US$70 million penalty in six installments by October 2020. The corporation has also agreed to phase out the manufacture and sale of non-desiccated phase stabilized ammonium nitrate Takata inflators by the end of 2018. Also, it will not enter into any new contracts to provide these inflators.
As part of the order, Takata has admitted that it was aware of a defect but failed to issue a timely recall, a violation of the Motor Vehicle Safety Act, the NHTSA reported. The administration also issued findings that “Takata provided NHTSA with selective, incomplete or inaccurate data dating back to at least 2009, and continuing through the agency’s current investigation, and that Takata also provided its customers with selective, incomplete or inaccurate data.”
The order also imposes unprecedented oversight on Takata for the next five years, including an independent monitor selected by NHTSA to assess, track and report the company’s compliance with the phase-out schedule and other requirements of the consent order, and to oversee the Coordinated Remedy Program.
Separately, the coordinated remedy order issued to Takata and the 12 vehicle manufacturers involved in the existing Takata recalls directs them to prioritize their remedy programs based on risk, and establishes a schedule by which they must have sufficient parts on hand to remedy the defect for all affected vehicles. The order also establishes a Coordinated Remedy Program, under which the agency will oversee the supply of remedy parts and manage future recalls with the assistance of an independent third-party monitor.
Under the coordinated remedy order, vehicle manufacturers must further ensure they have sufficient replacements on hand to meet consumer demand for the highest-risk inflators by March 2016, and to provide final remedies for all vehicles – including those that will receive interim remedies because of supply and design issues – by the end of 2019.
“We deeply regret the circumstances that led to this consent order,” Takata chairman & CEO Shigehisa Takada said in the release. “This settlement is an important step forward for Takata that will enable us to focus on rebuilding the trust of automakers, regulators and the driving public. Today’s announcement also marks a pivot point for Takata by setting out an orderly transition to the next generation of inflators. We will comply with all aspects of the settlement and are committed to being part of the solution.”