Honda faces record $35 million U.S. fine for 1,700 unreported claims

Bloomberg, Reuters

Honda Motor Co. said it failed to report more than 1,700 claims of injury or death involving its cars to U.S. regulators, a violation that would be one of the biggest in history and could lead to a fine of $35 million.

In a synopsis of an internal review filed with the National Highway Traffic Safety Administration, Honda on Monday blamed the underreporting on “inadvertent data entry or computer programming errors” that spanned 11 years.

NHTSA hasn’t made the audit documents public yet as it continues an investigation.

“The audit identifies difficult facts where we did not meet our obligations,” Rick Schostek, executive vice president of Honda North America, told reporters on a conference call. There will be retraining and staffing changes, he said.

“I haven’t got a detailed report yet, but it seems there were a lot of administrative mistakes on the ground,” Honda CEO Takanobu Ito told reporters at a corporate event in Ozu, Kumamoto Prefecture, on Tuesday.

The number of injury-claim omissions exceeded the 1,144 reports Honda filed over the period and primarily came to light because recent investigations into Takata Corp. air bag recalls had cast doubt on the diligence of automakers to tell the government about potential product defects. In some cases, Honda didn’t share with NHTSA information from police reports.

NHTSA is reviewing Honda’s report as part of an investigation into the company’s failure to report air bag-related deaths and injuries in a timely manner, said Kevin Vincent, the agency’s chief counsel. There’s no timetable for an agency decision, he said in a statement.

“We received Honda’s response to our special order and will immediately begin reviewing the documents as part of our ongoing investigation,” Vincent said.

Honda said eight of the 1,729 cases involved Takata air bag inflator ruptures and that NHTSA knew of those incidents.

“I think absolutely they are going to get a $35 million fine,” said Joan Claybrook, a former NHTSA administrator who now advocates for consumer safety. “It’s quite shocking Honda would behave this way. They’ve put their company reputation at risk.”

On Tuesday, Transport Minister Akihiro Ota said his ministry set up a task force late last week to deal specifically with Takata’s recalls. The ministry is also looking into whether Honda underreported incidents in Japan, an official said.

Automakers face fines of $7,000 per violation per day for not abiding by the Transportation Recall Enhancement, Accountability and Documentation Act, which requires the companies to tell regulators about customer injuries, lawsuits, warranty claims and complaints. If Honda’s admitted lapses — spanning from July 1, 2003, to last June 30 — average at least three days each, the automaker would actually exceed the law’s $35 million maximum civil penalty.

The largest fine NHTSA has levied for lack of compliance with its “early warning reporting” system was a $3.5 million penalty last month against Ferrari SpA for failing to file information on alleged defects and three deaths.

Schostek signaled at a Senate hearing last week that Honda hadn’t always lived up to the Tread Act. He said Monday that in addition to the coding errors, Honda used an overly narrow interpretation of “written notice.” Information from third parties, such as police reports or from private investigators hired by the company, wasn’t considered subject to the law, he said.

Honda has corrected the programming errors and will voluntarily include both written and oral claims of injuries and death in future early-warning reports, he said.

“It is certainly possible that Honda’s cooperation and proactive efforts, and agreement to institute certain changes, will mitigate the magnitude of this fine,” said Neil Steinkamp, a managing director at Stout Risius Ross who studies warranty and recall issues. “More importantly, this is likely to serve as a significant warning to other automakers.”

Shares of Honda, the third-largest Japanese carmaker, have tumbled 15 percent this year through Monday, compared with a 7.5 percent gain in the Tokyo Stock Exchange’s Topix index.

Takata has been hit even harder, plunging about 58 percent in the same period amid the escalating air bag crisis affecting almost 8 million cars in the U.S. The safety devices made by Takata are vulnerable to consistently humid conditions that may compromise the inflator in a way that metal components may break and propel shards at passengers when the air bag deploys.

Honda, Takata’s biggest customer, has linked two U.S. deaths in its cars to the air bags and is investigating two more. Honda is one of 10 automakers involved in the air bag recalls.

Asked what Honda had made of an early, pre-recall Takata air bag accident, in 2004, CEO Ito said: “We don’t have knowledge of inflators but . . . it was difficult to foresee that it would expand” to similar accidents or recalls.

Two U.S. lawmakers on Monday signaled an expansion of a Senate Commerce, Science and Transportation Committee investigation into Takata’s manufacturing, quality control, testing and handling of consumer complaints. In a letter to Takata Chairman and Chief Executive Officer Shigehisa Takada, Democratic Sens. Jay Rockefeller of West Virginia and Bill Nelson of Florida said they were unsatisfied with the company’s responses at a hearing last Thursday.

Takata’s senior vice president of global quality assurance, Hiroshi Shimizu, wasn’t able to answer questions at the hearing about the chemical compounds used in the company’s air bags, whether employees raised concern about the safety of those compounds or questions about the current production and testing of replacement air bags, the senators said. They asked for detailed answers to 24 separate questions.

Takata also has a Dec. 1 deadline to respond to 36 questions from NHTSA as part of that agency’s investigation into the air bag crisis.

It was that investigation that cast light on how automakers were meeting regulatory reporting requirements. The Center for Auto Safety, a watchdog group, accused Honda last month of not reporting at least two injury and death incidents related to air bags. The group called for the U.S. Justice Department to conduct a criminal investigation.

Honda disclosed shortly after that it had been conducting a third-party audit since September of its reporting practices.

The audit turned up eight claims related to Takata air bags that weren’t included in early warning reports to NHTSA, including one fatality and seven other injuries, Schostek said.

All of those cases were still reported to the agency by other means, he said, including a May 27, 2009, death. Honda notified regulators in writing of the incident on July 2 of that year, he said.

“Honda’s failure to report as required by law deprives NHTSA of the ability to protect the public,” said Hank Didier, a lawyer who represents the family of a 51-year-old woman who died after shrapnel from an exploding airbag left her looking as if she had been killed with a knife. “That is why this is so harmful.”

The family of Hien Tran claims in a lawsuit filed last week in Orlando, Florida, that Honda and Takata delayed for years letting consumers and regulators know of the potential risk of exploding air bags.

A Honda employee first noticed an issue with the way Honda was coding early warning notices, or EWRs, in 2011 and alerted the company. Honda said there was no followup to that report. In January 2012, NHTSA informed Honda that it was underreporting EWRs and Honda began looking into the issue at that time “but did not take conclusive action,” the automaker said Monday.

“Honda acknowledges that it lacked the urgency needed to correct its problems on a timely basis,” the company said.

  • Eagle

    What you can do in Japan cannot do in other countries.

    One main reason for that, they feel safe and protected as in Japan it doesn’t make sense to file a lawsuit as the court only would judge a minimum compensation that just wouldn’t cover the damage and the costs of a lawyer and trials. It’s all loss of money and time. So they believe no one would sue them anyhow. Japanese don’t complain, they don’t sue, they swallow the pain and bow.

    仕方がない、that’s the spirit here. So, in a highly secretive society, makers — not just car — can go ahead without recalls and in best case they will replace the faulty parts in the service next time the client has a car check up, and of course they will charge a great sum for it.

    They don’t care about the finds. They will continue doing it. The arrogance of a multinational company, the feeling of being untouchable, and greed, unspeakable greed. Than again this is not special to Honda.