U.S. Automotive Sector Plagued by Growing Airbag Recalls

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Researched by Industrial Info Resources (Sugar Land, Texas)--The automotive sector has been riddled with recalls in recent years. Last year saw an unprecedented 74.2 million vehicles recalled, according to the National Highway Traffic Safety Administration. Already in 2015, there have been 25 million recalls, with airbag problems involved in a majority.

This month, Japanese automakers Toyota Motor Corporation (NYSE:TM) (Aichi, Japan) and Nissan Motor Company Limited (NASDAQ:NSANY) (Yokohama, Japan) were the latest to announce vehicle recalls due to defective airbags. This recall alone will affect 6.5 million vehicles worldwide.

Toyota will recall an additional 5 million vehicles involving 35 models manufactured from 2003 to 2007, with 637,000 in the U.S. alone. Nissan will recall 1.5 million cars manufactured from 2004 to 2007, including 326,000 in North America.

These recalls add to the more than 25 million vehicles recalled worldwide by 10 automakers since 2008 due to faulty airbags made by Takata Corporation (Tokyo, Japan). Honda Motor Company Limited (NYSE:HMC) (Tokyo) has been hit the hardest, with airbag-related recalls accounting for about 14.5 million vehicles to date. Honda plans to expand the recalls, but has not yet disclosed specifics on the vehicle numbers, locations or models affected.

The large scale of the airbag recall is attributed to Takata, the world's second-largest airbag manufacturer, which produced the recalled parts. Takata, which boasts about 20% of the global market for airbags, manufactures 500,000 airbags a month and expects to double that capacity by September. But even with the company ramping up production to meet the demand for replacements, it could take as long as five years to resolve the issue.

Other Parts Suppliers See Opportunity
The large number of airbag recalls could spell increased or renewed investments by other suppliers over the next five years. But while rival airbag suppliers can and are willing to help, the process is going to need time and money.

Auto parts maker Autoliv (NYSE:ALV) (Stockholm, Sweden), the world's largest airbag manufacturer, increased production capacity 10% in 2013 following the expansion of its facility in Tremonton, Utah. The company produces 60 million airbag inflators a year.

While suppliers like Autoliv are willing to add capacity, they are looking for long-term commitments from automakers to keep the new assembly lines busy. Otherwise, the expansions are not sustainable. Autoliv has not committed to further capital investments at its U.S. facilities, but it is boosting production by adding overtime and weekend labor; the company plans to produce 25 million replacement airbags by the end of 2016.

Neaton Auto Products Manufacturing Incorporated (Eaton, Ohio) also recently decided to increase production. Neaton is undergoing an $8 million expansion at its facility in Rome, Georgia. The company, which is a supplier for Honda and Nissan, cited increased sales as the reason for the expansion. Construction at the facility is under way and is scheduled for completion this June. Brooks Building Group Incorporated (Rome, Georgia) is serving as general contractor.

On the bright side, U.S. automotive sales don't seem to be fazed by all the recalls. With double-digit percentage sales projected for each of the Detroit car makers and a strong start in 2015 sales numbers, the outlook remains optimistic.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.