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Editorial: Takata bankruptcy a risk management lesson for Japanese manufacturers

Auto parts manufacturer Takata Corp. has filed for bankruptcy after a massive global airbag recall. The company's liabilities are expected to top 1 trillion yen, making its business failure Japan's largest postwar bankruptcy for a manufacturer.

Takata was known as an auto parts maker with advanced technology and a large share of the global market. The company was ultimately driven to bankruptcy, however, after failing to quickly respond to the defective airbag issue. The latest business failure should be a lesson for Japanese manufacturers that have increased their sales overseas as they look to capitalize on their high product quality.

While it was around 2014 when a series of abnormal airbag ruptures was reported in the United States and U.S. Congress brought the issue to the table, defects in Takata's airbags were first confirmed roughly a decade earlier. If the company had taken action at an earlier stage, the problem might have not become this serious.

Nevertheless, Takata only acknowledged defects in its products and accepted the recall in the U.S. in May 2015. It was not until a month later that top management held its first news conference on the matter.

Takata products subject to recall ballooned in the meantime, reaching 100 million units. Eleven fatal cases were reported in the United States and injuries caused by defective airbags were also reported in Japan. The U.S. Justice Department, which took charge of the investigation over Takata's airbag fiasco, slammed the Japanese firm, saying that for over a decade Takata had prioritized profit over safety.

Some point out that the products' safety system could not keep up with the rapid growth of overseas production. However, Takata, whose flagship products also include seat belts, cannot escape blame that the company seriously lacked a sense of risk management and neglected consumers, even though it had specialized in auto parts that are meant to protect lives.

Takata CEO Shigehisa Takada is a member of the company's founding family, which is also Takata's major shareholder, and some say that the company's outside checking system did not fully function. The Takata bankruptcy, nevertheless, cannot be concluded as something particular to this company.

Auto makers also bear a heavy responsibility. Consumers do not choose car parts. They buy finished vehicles. Japanese auto companies that carry various Takata products should have worked on countermeasures against the airbag issue, but instead they traded blame with Takata.

The source of Japanese manufacturers' competitiveness in the international market has been their great workmanship skills. Japan's auto industry is a representative of such workmanship, and auto parts makers, including Takata, have played a role in the growth of the industry.

With economic globalization, many Japanese companies are advancing their businesses overseas by capitalizing on their technological capabilities. At the same time, if a company makes mistakes in handling an issue, it could fall into a situation where a heavy price must be paid -- as Takata now well knows. How should risk management systems be developed? That is something Japanese manufacturers need to work on.

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