Automotive supplier will pay $1 billion for providing misleading testing reports

By Mike Spector in New York and Mike Colias in Detroit 

Japanese automotive supplier Takata Corp. pleaded guilty to criminal wrongdoing and agreed to pay $1 billion in penalties for providing misleading testing reports to auto makers on rupture-prone air bags installed in millions of vehicles.

Takata pleaded guilty to one count of criminal wire fraud in a Detroit federal court Monday, settling a U.S. Justice Department probe of the company's mishandling of air bags that risked exploding and spraying shrapnel in vehicle cabins.

Takata's finance chief, Yoichiro Nomura, entered the guilty plea on the company's behalf during court proceedings. He said actions of certain employees were "deeply inappropriate."

Auto makers are in the process of recalling an unprecedented 42 million vehicles with nearly 70 million Takata air bags in the U.S. alone. The safety crisis, linked to 11 deaths and roughly 180 injuries in the U.S., has dented Takata's finances and prompted the automotive supplier to seek a significant investment from a rival supplier and weigh a bankruptcy filing.

Takata's plea agreement requires the company to pay a $25 million criminal fine; $125 million to consumers harmed or yet to be affected by the air bags; and $850 million to auto makers currently shouldering recalls costs.

Separately, plaintiffs' lawyers alleged in court documents filed in a different legal case in Florida that car companies for years equipped millions of vehicles with Takata air bags to save money despite knowledge the devices could endanger motorists.

A Takata spokesman declined to comment. The company has expressed regret for its safety transgressions and pledged cooperation with government officials and auto makers.

One unidentified auto maker referred to an air bag that ruptured in 2009 as a "passenger protection device...transformed into a killing weapon," according to the court documents filed Monday in a Miami federal court as part of consolidated litigation against car companies and Takata.

Plaintiffs' lawyers cited documents disclosed as part of the continuing legal case to allege that five auto makers prioritized cost savings when using Takata air bags that risked rupturing.

The court filing alleges Honda Motor Co., Toyota Motor Corp., Ford Motor Co., Nissan Motor Co. and BMW AG weighed various degrees of cost ramifications in deciding to purchase Takata air bags and equip them in vehicles, notwithstanding awareness of the dangers they posed.

Honda said the plaintiffs' court filing contained "false assertions that Honda and other manufacturers behaved irresponsibly" and represented a "transparent effort" to maintain legal claims despite Takata admitting to deceiving the Japanese auto maker and other car companies. The allegation that Honda chose Takata air-bag inflaters to save money "is categorically false" as entire air-bag modules the company purchased weren't consistently more or less expensive than competing products, the auto maker said.

The other car companies all declined to comment.

Auto makers have deeper pockets than Takata for plaintiffs' seeking legal awards and are paying significant sums to recall and repair vehicles. U.S. prosecutors have referred to auto makers as victims of Takata's fraud.

But plaintiffs' lawyers alleged auto makers were "far from innocent, unsuspecting victims, as they now claim to be," according to Monday's court filing in the Florida litigation. The plaintiffs' lawyers alleged Nissan, for instance, switched to Takata air-bag inflaters to save $4 on each device. Nissan also received warnings from another auto maker that the inflaters risked exploding years before it launched a nationwide recall of vehicles, the lawyers alleged.

Honda, Takata's largest customer, knew of air-bag ruptures in 1999 and 2000, years before the Japanese auto maker's first narrow recall in 2008, the court documents alleged. Emails and internal documents allegedly show Honda picking Takata inflaters "due to their relative 'inexpensiveness,'" according to court papers.

Ford overruled its own inflater expert who opposed the ammonium-nitrate propellant in Takata air bags, the court documents alleged. That chemical can destabilize when exposed to moisture over time, leading to explosions, according to investigations by U.S. officials, auto makers and Takata.

Toyota was aware of an air bag rupturing in one of its vehicles five years before conducting a nationwide recall, plaintiffs' lawyers alleged. BMW, meanwhile, concealed an air-bag rupture in one of its vehicles and used Takata air bags despite Takata alerting it to problems with the devices in other auto makers' vehicles, the court documents alleged.

Write to Mike Spector at mike.spector@wsj.com and Mike Colias at Mike.Colias@wsj.com

(END) Dow Jones Newswires

February 28, 2017 02:47 ET (07:47 GMT)

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