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How Will Takata's Airbag Recall Covering 34 Million Vehicles Impact U.S. Consumers?

By Daniel Miller – May 30, 2015 at 2:03PM

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While Takata Corp. faces the brunt of scrutiny for the airbag recall, automakers such as Ford and General Motors will be affected, and you'll probably foot the bill.

When it comes to vehicle recalls and defects, it's been a pretty terrible couple of years for the U.S. automotive industry. In 2014, General Motors (GM 0.27%) recalled nearly 27 million vehicles in the U.S. alone, and more than 30 million vehicles globally. Just last week, auto parts manufacturer Takata Corp. finally acknowledged that its airbag inflators, found in roughly 34 million vehicles, are indeed defective.

With Toyota Motor Corp. agreeing last year to pay $1.2 billion to resolve a U.S. federal probe into safety problems with the Japanese automaker's vehicles, and similar fates looming for GM and Takata, it has become clear that consumers will eventually foot the bill.

Details of the Takata fiasco
The problem with defective Takata airbags lies with the inflators, which could rupture in a crash and unleash metal shards on vehicle occupants. The users of Takata airbags are Ford, GM, Fiat Chrysler Automobiles, Honda, Toyota, Mazda, Mitsubishi, Nissan, Subaru, and BMW.

"Up until now Takata has refused to acknowledge that their airbags are defective," U.S. Transportation Secretary Anthony Foxx said at a press conference last week, according to Automotive News. "That changes today."

While recent details have drawn more attention to Takata's defective airbags, this is actually a 7-year-old story. Dating to 2008, Takata's defective airbags are in nearly 34 million vehicles from 10 different automakers.

The problem for automakers is the lack of a proven solution. Takata claims its new airbags, which will be swapped out in place of the defective airbags, aren't yet proven to be safe over the long term. However, the National Highway Traffic Safety Administration believes the new airbags are at least safer than the old, and that forcing Takata to swap them at least takes the burden off automakers that otherwise would have been forced to replace 34 million vehicles -- which isn't a realistic option.

With a couple year's worth of massive recalls in the record books, the end result is likely to be more strict and costly safety regulations -- a cost that will eventually be passed to consumers. But by just how much?

"They [buyers] would be shocked to know that 21% of the cost of the car is just what the manufacturer's cost is for compliance. That takes money out of their pockets honestly and hurts jobs, too." the chairman of the National Automobile Dealers Association, Forrest McConnell III, said last year. "We are basically being regulated to death."

An automotive supplier report from McKinsey estimated that U.S. safety regulations alone could add $250 in new-component costs per vehicle by 2020. That might not seem like much, but it's part of the reason automakers are scaling production to mitigate rising costs. 

General Motors, for instance, plans to move from 26 vehicle platforms this year to just four by 2025. CEO Mary Barra said the move could eventually save the automaker billions of dollars in production costs.

Unfortunately, as automakers increase scale -- Ford, as another example, plans to reduce its supplier base from 1,150 to 750 -- it makes the possibility of massive recalls more likely, as more vehicles will use common parts.

The previous couple years could be a glimpse into the future when recalls covering tens of millions of vehicles worldwide are unfortunately much more common, and where the consumer, as always, gets left with the check as rising regulation costs are passed down.

Daniel Miller owns shares of General Motors. The Motley Fool recommends General Motors. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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