Takata Highlights Breakdown of Keiretsu System

Takata might be reeling from the largest vehicle recall in automotive history, but the components maker’s search for a large investor has generated an unlikely buzz – even before the sale process officially gets under way. Private equity groups including KKR, Bain Capital, and PAG Asia have shown early interest in the lossmaking Japanese group, while media reports suggest Chinese companies might also be willing to lend a hand. But that is pretty much where the good news ends. Investors should be braced for a messy, entangled sale process from here. Takata, one of the world’s largest makers of air bags, has been engulfed in crisis following revelations that some of its products explode and spray shrapnel. Its air bags are linked to at least 13 deaths and more than 100 injuries worldwide, and US regulators have demanded the recall of more than 60m vehicles fitted with Takata’s products. The cost of replacing these airbags could exceed ¥1tn ($9bn). As well as being a story of one company’s failures, Takata’s downward spiral is testament to the breakdown of Japan’s keiretsu system of close ties between companies. These arrangements, based on cross shareholdings, allowed both strong and weak companies to grow together, and protected them from hostile bids – particularly from overseas.This has been a feature of the relationship between Japanese manufacturers and their suppliers, especially in times of trouble. But the keiretsu system has faded with globalisation and corporate governance reforms that require companies to take greater account of shareholders’ interests. (FT)