Stakeholders are getting irritated with how slow the decision-making by top customer and shareholder Honda Motor Co. is, as airbag manufacturer Takata Corp. incites buyers to settle the auto industry’s largest recall in history, according to sources familiar to the matter.
Anonymous officials of other car manufacturers cited that Honda hasn’t played a major role in discussions the world’s automakers are having with Takata over what’s ahead.
An executive at one of Takata’s lenders further supported this claim, saying Honda has been less active than its peers in considering whether sub-suppliers to Takata would be able to survive a possible bankruptcy. On the contrary, Honda deems it is in proactive talks on best actions to cope with Takata’s issues, spokesman Ben Nakamura stated.
Honda stands as the company with the most prevalent exposure to airbag recalls and the deaths and casualties caused by the faulty devices. Thus, the carmaker has the most to lose in negotiating the cost-sharing required to look for suitors for Takata. It holds a position to ensure Takata stays in existence and not fall into bankruptcy.
Ken Miyao, an analyst with Tokyo-based Carnorama, said that, “The recalls at some of the other carmakers are much smaller in scale. They will count on Honda to negotiate with Takata.”
Pressing too hard against the latter company would be risky should it fail—it could disturb a key link in Honda’s parts supply connections.
Without buy-in from Honda, which made up about 14% of Takata’s sales last year, the supplier is not likely to reach agreement with the approximately dozen other customers it’s been meeting with to pick between bids by rival airbag companies and private equity suitors.
Honda’s Place in Faulty Airbags
In May, Honda said it would recall 21 million vehicles to replace Takata airbags. The manufacturer of Civic compacts and Accord sedans in November 2008 introduced the first repair operation related to Takata’s defective airbag inflators, which had a propellant that broke down when exposed to high heat and humidity. The degraded material afterwards can lead the inflator to break and spray plastic and metal splinters at vehicle occupants.
14 out of the 15 motorists who have perished in serious accidents involving Takata inflators in the US, Malaysia, and India occurred in Honda vehicles. An estimated count of 90 million airbags is set to be replaced in the US and Japan alone.
The supplier also faces class-action lawsuits filed by vehicle owners and a criminal investigation by the US Justice Department.
Analyst at Jefferies Group LLC Takaki Nakanishi has projected the airbag repairs alone may cost about 1.28 trillion yen, or $12.6 billion. Takata reported 404.7 billion yen in total assets as of the end of June.
Yet, Honda hasn’t changed its position and it won’t surrender on recovering recall charges from Takata and won’t offer financial assistance to the company, said Nakamura. “However, for the recall cost, there is room to reconsider based on the agreement we will be reaching. Our priority is to keep the flow of supplying the products to our customers and we will make decisions accordingly.”
Honda (HMC) ended the previous session in the green, a measly 0.19% to 29.07. Unfortunately, it dipped 0.03% to 29.06 in afterhours trading.
Honda also posted a 0.1% year-over-year fall in sales to 133,655 vehicles in the month. Sales in the Honda Division improved 1.5% to a September record of 120,842 units. However, sales at the Acura Division dropped 12.9% to 12,813 vehicles.
Nonetheless, Honda sales grew by 11.5% year on year in 2017 Q1, and the company has a good Free Cash Flow (FCF) yield of 5.48%. The chart also shows that Honda had already recovered from lows hit in the previous months, already reaching highs and levels of 2014. The stock remains volatile between resistance and support levels of 29.22 and 28.79 respectively.
However on the chart, the trend line indicates it’s weak already. A doji candle has signaled a reversal of the trend, and true enough, the bears took control in the whole duration of September. The second doji candle has started a small rally after a bearish fakeout. It is likely that the next movement of HMC will go up, but it will remain limited and short.
(chart taken from tradingview.com)
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