Takata Corp., the Japanese auto-parts maker behind massive air bag recalls, is expecting a return to profit for the fiscal year through March 2017, although it just agreed to recall millions of additional parts.
Tokyo-based Takata reported a loss of 13 billion yen ($120 million) on Wednesday for the fiscal year that ended in March – its second straight year of red ink.
It had originally forecast a profit, but revised that to a loss earlier this week. It racked up a 29.6 billion yen loss the previous fiscal year.
Takata forecast that it would return to the black in the current fiscal year, with a 13 billion yen ($120 million) profit, although that did not take into account the latest recalls.
What lies ahead for Takata is largely unclear because automakers handling the recalls – which include many major companies such as Honda Motor Co., Ford Motor Co. and BMW, will bill Takata. And all the replacements are not yet done.
Class-action lawsuits that Takata is almost certain to face will add to the ballooning expenses.
Scott Upham, CEO of Valient Market Research in Philadelphia, which tracks air bag sales, called the profit forecast “foolhardy,” saying that Takata will lose revenue from selling air bag inflators as automakers stop buying from the company. Also, automakers will start billing Takata for growing recall costs, he said.
The company, he said, is trying to push off recall costs until the next fiscal year so it can attract financial backing to save the business. “I would be very surprised if they’re able to announce a profit at year end,” he said. “I think they’re really underestimating the OEMs’ (automakers) capability of getting that cost back.”
Most companies facing huge expenses place them on the books in the year they are discovered, although companies do have flexibility, said James Angel, associate professor of finance at Georgetown University.
“Generally, as soon as you know that expense is definite, you book the expense,” he said.
Takata air bag inflators involved in the recalls can explode with too much force and spew shrapnel inside vehicles. The inflators are responsible for at least 11 deaths worldwide and more than 100 injuries.
Authorities in Malaysia have begun an investigation into two more recent deaths in cars with Takata air bags that ruptured.
Last week, the U.S. National Highway Traffic Safety Administration added up to 40 million Takata air bags to the ongoing recall of 28.8 million air bags.
On a global scale, that could mean more than 100 million inflators. The global recall had previously totaled about 50 million inflators. Because of the sheer numbers involved, it will take years to manufacture replacement parts.
Many automakers have said they will stop using Takata air-bags in models under development.
NHTSA says it takes a minimum of six years for the chemical to become unstable in high humidity regions. As cars age, the risk grows, especially in areas where temperatures frequently cycle from cool to hot.
Takata’s earnings numbers so far do not account for the latest round of recalls.
The Japanese government has instructed automakers to look into the additional recalls, based on the latest NHTSA agreement.
For the fiscal year that ended in March, Takata’s sales rose 12 percent from a year earlier to 718 billion yen ($6.6 billion). That is forecast to drop 7 percent to 670 billion yen ($6.2 billion) for the fiscal year through March 2017.