Honda Motor Co., Ltd. (HMC) has agreed to pay cumulative fine of $70 million to the U.S. safety regulators for its failure to report hundreds of injuries, deaths and other consumer claims related to its vehicles. In Nov 2014, the automaker admitted that it had failed to report 1,729 complaints for deaths and injuries, recorded from Jul 2003 through Jun 2014. Honda also failed to report warranty claims and claims registered under customer satisfaction campaigns during the same 11-year period.
As a result, the company will be paying two $35 million fines, totaling $70 million. This will be the largest fine paid by any automaker as a result of an investigation conducted by the National Highway Transportation Safety Administration (NHTSA). The first $35 million fine is due to the automaker’s failure to report the death and injury complaints, and the other $35 million fine has been imposed for not reporting the warranty and customer satisfaction claims. Both these fines are the maximum that the government can impose.
The complaints were mainly related to the faulty air bags produced by Japanese auto supplier, Takata Corp., along with a few other defective parts. Since 2008, Honda has recalled more than 5 million vehicles in the U.S. to fix the airbag issue. The air bags manufactured by Takata have an inflator that was produced with a faulty part. Thus, when an air bag is deployed, the inflator can explode and shoot out metal fragments into the vehicle.
Automakers are supposed to report the NHTSA about any defects, deaths and injuries, or damage and warranty claims made by consumers as soon as possible. The safety regulators consider delay in reporting as a major offence as it hampers their agenda of protecting the public and may even lead to deaths. They also consider that this amount of fine is quite low and should be increased to $300 million.
Under the present Early Warning Reporting system, automakers are required to provide quarterly updates on deaths, injuries and warranty claims related to any potential defects. These are then investigated and it is decided whether a recall is needed. In 2014, the NHTSA had imposed fines of more than $126 million due to violation of this law by automakers. Honda is now taking steps to improve upon the shortcomings and has started new training programs for its workers.
Last May, General Motors Co. (GM) paid a fine of $35 million to the U.S. safety regulators due to the late recall of 2.6 million older-model small cars for faulty ignition switches. General Motors had identified the problem in 2001. As a matter of fact, the engineers provided different ways to rectify the defect but none of them was accepted due to cost concerns. The company had finally announced a recall in Feb 2014.
Honda currently carries a Zacks Rank #4 (Sell). Investors interested in the auto industry could consider better-ranked stocks like PACCAR Inc. (PCAR) and Fuji Heavy Industries Ltd. (FUJHY), both carrying a Zacks Rank #2 (Buy).
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