As Toyota Dropped Its Airbags, Takata Shares Plunged

Toyota decides to drop Takata as their airbag supplier last week. Previously, other automakers have ditched Takata as their airbag suppliers as well. This gives a devastating blow to Takata, whose shares drop 25% after series of incidents related to airbags defect.

According to CNN Money, Toyota as the world's biggest automaker by sales, said on Friday it would no longer use Takata products containing ammonium nitrate. Toyota followed Takata's biggest customer, Honda and other major automakers like Mazda and Mitsubishi to ditch airbags manufactured by Takata. This concluded the biggest safety scandal in auto industry after a series of incidents from massive product recall, injuries, deaths by accident, and regulatory fine. Last week, National Highway Traffic Safety Administration (NHTSA) imposed $70 million fine on Takata for its defective airbag.

Beside seatbelt, airbag is a vehicle safety device installed in automobile. It is a gas-inflated cushion that rapidly discharges from compartments hidden in steering columns, dashboards, roof rails, doors and seats. It has a hyper-inflating mechanism to protect driver and passengers when car collision occurred. United States government issued an act in 1991, requiring all passenger cars and light trucks built after September 1, 1998 to have air bags in driver and right front passenger. Airbag employs a rapid inflation started by a chemical reaction generated by compound such as nitrogen, argon, and others. Up to now, various chemical compounds are used, and so far, none of them shows the best result.

Takata uses ammonium nitrate, a volatile compound, as its airbags inflater. However, according to New York Times, that is the center of the trouble. Ammonium nitrate can destabilize and in extreme cases causes the device to explode, sending metal fragments into the vehicle. So far, eight deaths and more than 100 injuries have been linked to the defective inflaters. NHTSA as American safety regulators this week effectively barred Takata from continuing to use ammonium nitrate in airbags. More Japanese automakers have intended to avoid using certain air-bag inflaters made by Takata in their new vehicles. Honda, and Toyota has said they will not use Takata airbags, while Subaru, Mazda and Mitsubishi considered to switch to other suppliers.

Incidents after incidents in the airbags products resulted in massive plunges in Takata shares. According to Wall Street Journal, its share price fell 25% their lowest level in more than six years. So far, millions of cars have been recalled due to defective airbags manufactured by Takata, resulting lost of confidence and trust in the company's product and credibility.

As soon as Toyota followed Honda dropping Takata's airbag in their products, Takata's share plunges to the lowest record. Takata, who has been producing airbags since 1988, holds out 20% of the world's airbags market, is now facing a huge problem to win back their credibility.