If U.S. safety regulators require General Motors to recall another 4.3 million of its vehicles to replace Takata airbag inflators,the company could lose $550 million, according to a quarterly report filed on Thursday.
The Takata airbag inflators in GM vehicles are performing as designed and will not pose an unreasonable risk through 2019, if at all, the company says in a second-quarter earnings report filed with the Securities and Exchange Commision. However, if GM is obligated to repair the inflators in these vehicles, the company estimates a cost of up to $320 million for the 2.5 million vehicles initially identified. That price tag would swell to an additional $550 million for up to 4.3 million vehicles subject to future Takata defect information reports, according to the filing.
Takata, one of the world’s largest suppliers of auto safety equipment, has had problems with its airbags since 2008. Those problems have escalated in the past three years as fatalities linked to the inflators have risen, triggering recalls and lawsuits.
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The recall of Takata airbags, which have been classified as defective because they can explode violently under prolonged hot conditions, has been expanded to nearly 70 million vehicles in the U.S. and 100 million cars worldwide. Of the 70 million recalled, only about 8 million have been replaced.
The National Highway Transportation Safety Administration has determined that time, temperature, and moisture is the likely root cause of the rupturing airbags. In May, NHTSA ordered Takata to file “defect information reports” on previously unrecalled front airbag inflators through 2019, a decision that impacts tens of millions of vehicles produced by numerous automotive manufacturers, GM says in the filing.
While GM doesn’t believe there is a safety defect in any of its vehicles, it filed a preliminary defect information report in May, and another in June, covering 2.5 million of its full-size pick-up trucks and sport utility vehicles.
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GM now has a chance to try and prove to NHTSA that the inflators in these vehicles do not pose an unreasonable risk to safety. If GM doesn’t make its case by September, then it will be obligated to repair the front passenger airbag inflators in these vehicles. GM says results of further testing and analysis support its claims that no repair will be required.
GM’s quarterly earnings report, which included disclosure of the potential airbag issue, showed a company poised to handle the extra cost. The company reported that its second quarter net income rose to $2.87 billion, up from $1.1 billion a year ago. The automaker raised its forecast for full-year earnings to between $5.50 and $6.00 per share for full-year 2016, up from a previous forecast of $5.25 to $5.75 per share.
