For many years, Honda Motor Co. (HMC, Financial) has enjoyed a reputation for safety and quality in its cars and motorcycles, but that reputation could be in for a beating. The National Highway Traffic Safety Administration (NHTSA) announced November 3 that it was opening an investigation into whether Honda failed to report deaths or injuries that may have been connected to defective air bags.
Honda was given three weeks to answer questions about its process for identifying and logging accident reports for more than a decade. Under federal law, carmakers are required to submit, on a quarterly basis, “Early Warning Reporting” data about injures or deaths involving their vehicles that might have been caused by defective equipment.
The NHTSA said it had reason to suspect that Honda had not reported such incidents involving air bags made by Japan-based Takata Corp., a primary supplier of air bags to several automakers.
Takata’s air bags have had problems with rupturing and spraying metal shards on vehicle occupants. The latest issue involves vehicles from the 2013 and 2014 model years, but Takata revealed during the weekend that it made the defective air bags between 2008 and 2014.
In 2013, 3.6 million vehicles were recalled because of defective air bags. In June of this year, Honda, BMW, Chrysler, Ford (F, Financial), Mazda, Nissan and Toyota (TM, Financial) issued recalls for more than 3 million vehicles equipped with Takata air bags. At the time, a Honda spokesman said the company was aware of two deaths and more than 30 injuries that were connected to the faulty air bags.
Three weeks ago, Toyota issued three recalls related to other equipment issues; it also re-notified owners of previously recalled vehicles equipped with Takata air bags and expanded the recall to include an additional 20,000 vehicles. The price of Toyota’s stock went down about 3% after the recall was announced.
Analysts were disappointed last week when Honda released its second quarter results for FY2015. The numbers weren’t bad, but they did reflect a certain amount of anxiety over recalls. While GuruFocus reported last week that Honda’s greatest risks in the short term appeared to be steel prices and exchange rates, the specter of an NHTSA investigation hanging over the company has to be a concern for Honda.
Initially, the public reaction wasn’t good. Honda stock was down more than 4% at the end of trading Tuesday.
Takata began making the air bags in 1988 after American regulators began to require their installation in vehicles.
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