Nissan Motors (NSANY, Financial) is under the radar for not resolving the issue of airbag seat sensors. U.S. safety regulators are now scrutinizing the issue as customers complained about the problem of the seat sensors. Though the auto giant has claimed to have resolved the issue, the problem still persists.
The issue
The Japan-based automotive company had recalled a whooping 99,000 cars in 2013 and 2014 once the issue was detected. Apparently, the computer software that was installed in the cars did not detect the presence of an adult in the passenger seat. Thereby, if any mishap would occur, the airbag would fail to inflate. Models like Altima vehicles, Nissan Leaf, NV200 Taxi Van, Nissan NV200, SUV Q50, etc., were affected. Later models like Infiniti QX60 as well as the Nissan Sentra were affected as well. After the recalls were made, the company assured their patrons that they wouldn't face any repeated issue. However, around 124 people reported problems even after the company said it had fixed the issue. The National Highway Traffic Safety Administration probed the claims from the consumers. The Associated Press reported that the NHTSA opened a recall query to find out if the said repairs were actually done or not. Probes will also be conducted to find out if the computer software had been updated or not. The automaker which has its manufacturing locations in China, India, Indonesia, Mexico, Brazil and all over the world now faces the wrath of its consumers and shareholders alike.
Peers facing same issues
Not only has Nissan faced such an issue, but Takata Corp. (TKTDY, Financial) is being sued by many auto-makers due to its manufacture of faulty airbags. These faulty airbags were used by ten auto-manufacturers in the United States, including Nissan. Honda Motor Company, Ltd. (HMC, Financial) had also had to recall more than 104,000 Honda Accord sedans along with Honda Civic manufactured in 2014. The Honda Pilot SUV was also recalled due to same reason – the faulty airbags that Takata Corp. manufactured. A spokeswoman for Honda said that the carmaker will now have to separately set aside reserves to pay for these recalls. NHTSA had revealed this information earlier this month. Last month, Jaguar Land Rover had announced its plans to recall around 61,000 cars after the faulty computer software failed to open the passenger air-bags in case of a mishap.
Investor impact
It is expected that sales of Nissan will fall in the months to come. Nissan shareholders can expect a devaluation due to probable low profits. According to a study, "The Attributes of A Costly Recall: Evidence from the Automotive Industry" by Nicholas G. Rupp, airbag recalls can actually lead to greater equity losses since airbags are costly to repair, and they pose a greater injury hazard and potential liability. Now that this airbag issue has cropped up, although it is not entirely the fault of the automaker, it seems that shareholders will ultimately have to bear the brunt. The automaker reported 8.09 trillion yen as net revenues and an operating profit of 417.9 billion yen for the third quarter fiscal year of 2014. The net income reported was 338.8 billion yen for the same time period. Nissan and other automakers now expect Takata Corp. to pay for the damages and other incurred costs. Though Takata CEO and Chairman Shigehsia Takada has apologized to all the shareholders, creditors are keeping a close watch on the airbag manufacturer. Takata has around $1 billion of cash as per its books record. In the Nissan Motor Corporation annual report of 2014, the sixth largest automaker in the world said that they had increased their dividend payout ratio from a minimum target of 25% to 30%. Let's wait and watch. The company is moving in the right direction, no doubt, but at what cost?
