Honda profit higher, despite air bag woes, stops using all Takata inflators in future models

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TOKYO — Honda reported a quarterly profit of 127.7 billion yen ($1 billion) Wednesday, up 7 percent from its revised result from the year before, even as costs of a massive recall related to defective air bags dented the boost from healthy sales.

Tokyo-based Honda, hard hit by air bag problems at supplier Takata Corp., said it will stop buying air bag inflators from Takata for models now under development.

The maker of the Odyssey minivan, Civic sedan and Asimo robot had recall-related expenses totaling 87.5 billion yen ($723 million) for the quarter. July-September sales rose nearly 16 percent to 3.6 trillion yen ($30 billion).

The automaker said it revised past earnings because it has adopted International Financial Reporting Standards, a set of accounting rules being promoted globally by the International Accounting Standards Board as more transparent and accountable.

Honda, which has repeatedly said it won't rescue Takata, issued a statement saying Takata had not been forthright enough.

"We have become aware of evidence that suggests that Takata misrepresented and manipulated test data for certain air bag inflators," Honda said. "Honda expects its suppliers to act with integrity at all times, and we are deeply troubled by this apparent behavior by one of our suppliers."

Takata agreed to pay $70 million in U.S. penalties for lapses in how it handled recalls of millions of explosion-prone air bags, blamed in eight deaths and more than 100 injuries worldwide.

Under the five-year pact, the National Highway Traffic Safety Administration can increase the penalty to a record $200 million if Takata fails to abide by the terms. Takata agreed to phase out air bag inflators that use ammonium nitrate, the propellant blamed for the explosions.

Takata Chief Executive Shigehisa Takada stressed the company will comply and deliver a fix. But the root cause of the propellant remains under investigation.

Although there is a question mark about Takata's future, one factor in its favor is that it makes a variety of products, including seat belts and steering wheels. Air bags made up 38 percent of Takata sales last fiscal year.

"I don't know if it's enough to take the company down," said Kelley Blue Book senior analyst Rebecca Lindland. "I think they will weather the storm, but they need to come clean."

It is also not easy for automakers to switch suppliers because model development and planning take several years, and various models at a manufacturer share platforms, or basic parts.

Honda has not ruled out the use of other Takata products, including air bags minus the inflators.

Takata shares plunged 13 percent in Tokyo on Wednesday. It reports earnings Friday.

Takata plans to pay $10 million in the NHTSA fines this fiscal year, but will book the entire amount in its next earnings. Takata said it has enough in its coffers to pay the $10 million.

Takata's inflators can rupture and hurl shrapnel at drivers and passengers in a crash. So far, about 23.4 million driver's-side and passenger-side inflators have been recalled on 19.2 million U.S. vehicles sold by 12 automakers. In Japan, the affected vehicles total nearly 10 million.

According to NHTSA and Honda, Takata's misconduct dates back to at least 2009. Automakers must notify NHTSA of defects within five days of discovering them.

Among other Japanese automakers, Nissan Motor Co. reported a 38 percent rise in profit for the July-September quarter at 172.8 billion yen ($1.4 billion), on the back of healthy sales surging 13 percent. Toyota Motor Corp., the world's biggest automaker, reports financial results Thursday.

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