If you are one of tens of millions of auto owners whose vehicle is recalled to replace an air bag that could explode and maim or kill you, one thing’s for sure: Someone else will be footing the bill.
Just who should pay poses a rare question in an industry that has seen multiple recalls for a variety of defects this year. In most recalls, the company that built the troublesome product pays to fix it.
But in this case, the automakers who are recalling and replacing faulty air bags simply installed a product made by someone else, Japanese auto-parts supplier Takata Corp. So far, Takata has resisted federal pressure that it issue its own recall of the potentially deadly air bags, insisting that the recall responsibility lies with the automakers themselves.
“In any recall, the costs are largely determined by who is responsible for the recall,” said Karl Brauer, senior analyst at Kelley Blue Book. “If a supplier produces a defective part that doesn’t meet the manufacturer’s requirements, the supplier will be charged for the recall.”
At this point, Takata says it is unsure exactly what is causing the explosions. Five people have died and scores have been injured when the metal canister of a Takata air bag exploded during a collision, spraying the vehicle’s interior with sharp metal shards.
Ford became the latest car company to expand its recall of cars with Takata driver-side air bags Thursday, adding 502,500 older model Mustangs to its recall list. Honda, Chrysler and Mazda had already expanded their recalls.
They were among 10 car manufacturers who began a regional recall in June, focusing on areas of high heat and humidity where the air bags were believed more likely to malfunction.
Before the carmakers added millions of vehicles to the recall this month, it was estimated that 20 million Takata-equipped cars were under recall orders.
Neither Takata, which declined to comment, nor the automakers want to talk publicly about who will pay for the parts, labor and inconvenience of the recall. Several automakers have promised free loaner vehicles to customers while air bags are replaced.
“I’m sorry, but I can’t get into the financial aspects of this action at this time,” said Chris Martin of Honda, which is recalling about 5.4 million cars in the United States. “Our primary focus is on repairing affected vehicles and addressing the needs and concerns of our customers.”
The who-pays issue may be dictated by contracts between Takata and the automakers, and the question is sure to be under discussion as the recalls mount.
“In these situations, it can require litigation to sort out the respective responsibility,” said Carl Tobias, a law professor at the University of Richmond, “but if Takata really bears the lion’s share of responsibility, it may be cheaper, better for its reputation, and better for its future relationship with manufacturers, to absorb the recall cost or pay for most of it.”
Peter Shervington, a London-based lawyer who specializes in dispute management, said carmakers are motivated to protect the reputation of their brand.
“The automaker will want to be seen to be taking responsibility for its product, even if it is ultimately able to recover the cost of the recall from another party,” Shervington said. “They will be very concerned to ensure that their customers are not put at risk, and will also be conscious of the threat that, if they don’t act, the regulator will step in and force a recall.”
The U.S. National Highway Traffic Safety Administration is already taking steps to force a nationwide recall.
Takata makes 1 in 5 air bags worldwide, has 55 factories in 20 countries and is among the world’s largest suppliers of auto parts. But the company hasn’t been able to keep up with the demand for replacement air bags, and its competitors are reluctant to ramp up production unless they get long-term commitments from automakers for their products.
If Takata is saddled with the full cost of the recall, some question whether the company is too big to fail and say the automakers may want Takata to survive to preserve their source of air bags.
“In many cases, there is a mutual interest in preserving commercial relationships and the parties are able to resolve the matter without the need for legal action,” Shervington said.
The automakers may be motivated to absorb some of the cost because they recognize they, too, bear legal liability for the defect, said Jayne Conroy, a New York-based leading products liability lawyer.
“There’s no way a company like Takata is completely responsible,” Conroy said. “We will find out that those car manufacturers told Takata exactly the size of the air bag component that needed to be put into the car, exactly what it should weigh. We will find ways that the car manufacturers are actually dictating to Takata what that product ought to look like.”
She said consumer liability lawsuits may begin with Takata, but the car companies will feel the sting too.
“I don’t know whether Takata is going to be big enough financially to withstand all of the litigation,” she said, “and I’m not sure that the car manufacturers should be off the hook for what I guarantee you was a composite effort.”