Takata Says Recalls Will Erase Predicted Profit

Takata Corp. warns it will report a 13 billion-yen ($120 million) loss in the fiscal year ended March 31 because of rising costs associated with recalling its flawed airbag inflators.

The company previously expected to report a net profit of 5 billion yen ($46.1 million), reversing the prior year’s record loss of 30 billion yen.

Takata is booking a one-time charge of 20.1 billion yen ($185 million) for recall-related costs. But the figure was set before before last week’s warning by the National Highway Traffic Safety Administration that the company should prepare to more than double its recalls in the U.S. to at least 64 million inflators.

Analysts note that Takata’s costs will rise again if carmakers adopt NHTSA’s recall criterion to vehicles outside the U.S.

The agency’s recall now includes any Takata frontal airbag inflator that lacks a drying agent used to help prevent its propellant from deteriorating with age and exposure to heat and moisture. Applying the same description to Takata inflators worldwide would more than double the size of current recalls to roughly 205 million devices.

The additional volume would add 2.3 trillion yen ($21.2 billion) in new recall costs, estimates New York City-based investment bank Jefferies Group LLC. Most of the recall costs to date have been borne by at least a dozen vehicle manufacturers. Takata has been in discussions with banks and its auto industry customers about the company sharing more of the expense.