Japanese auto supplier Takata will plead guilty to one criminal charge in Detroit Monday and pay a $1 billion in penalties and restitution to resolve allegations that it covered up a deadly airbag defect.
The settlement requires that Takata allocate $125 million to a victims’ compensation fund, $850 million to automakers whose vehicles have been affected by the airbag defect, and a $25 million criminal fine.
Additionally, the U.S. Department of Justice indicted three Takata executives for their roles in the alleged cover-up. Federal prosecutors claim that the executives falsified test reports to conceal a flaw that can cause the airbags to deploy with lethal force – often exploding like a bomb in minor collisions.
The defect involves Takata’s use of an ammonium nitrate chemical compound inside the airbag inflators. While other airbag makers have avoided using this chemical mixture due to its instability, Takata allegedly chose to use it to save money and gain a competitive edge.
The airbag defect has been linked to the deaths of 16 people, including 11 in the U.S., and more than 180 injuries. The problem has also triggered multiple recall expansions. In the U.S., nearly 70 million airbag units affecting more than 42 million vehicles made by more than a dozen manufacturers have been recalled.
Because Takata’s ammonium nitrate inflators are prone to degrade over time, especially in areas of high humidity, older vehicles haven been given priority in the massive recall.
Takata initially resisted efforts to expand the first recalls but eventually consented under pressure from the National Highway Traffic Safety Administration (NHTSA). More and more evidence subsequently surfaced indicating a possible conspiracy within Takata to downplay the dangers of its airbags.
The evidence triggered a federal investigation, which prompted Takata to settle the allegations. The U.S. Department of Justice announced the pending agreement last month during the Obama Administration’s final week.
Takata is seeking approval from U.S. District Judge Caram Steeh of Michigan’s Eastern District to approve compensation fund expert Kenneth Feinberg as administrator of the $125 million victims’ fund. Mr. Feinberg has overseen the General Motors ignition switch victims’ fund and Volkswagen’s fund for car owners affected by its emissions cheat, as well as funds set up for victims of 9/11, BP’s Deepwater Horizon oil spill, and the Boston Marathon bombing.
The $850 million will go toward automakers harmed by the airbag scandal, but that amount will only cover a fraction of the actual costs automakers have incurred in the recall. The amount was likely agreed upon to help keep Takata solvent. The company is in talks with potential buyers, and says that the settlement will help it move forward with investors.
Key Safety Systems, a U.S. company owned by China’s Ningbo Joyson Electric Corp., is currently in the lead to buy Takata. Key Safety Systems in the world’s fourth-largest airbag manufacturer.