Honda Could be Fined $35M for Underreporting U.S. Claims

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 yesterday 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.

The number of injury-claim omissions exceeded the 1,144 reports Honda filed over the period and primarily came to light because investigations into Takata Corp. air-bag recalls 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.

Early Warning

Honda President Takanobu Ito said today the automaker didn’t share the same understanding as authorities of its obligations under U.S. law. He said local management made many mistakes filing early-warning reports, which NHTSA relies on to help spot potential defects.

Japan’s government is forming groups to oversee airbag recalls tied to Takata and probe Honda’s U.S. reporting errors, Transport Minister Akihiro Ohta told reporters today in Tokyo, where both the companies are based.

Honda said eight of the 1,729 cases involved Takata airbag 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.”

$35 Million

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 June 30, 2014 – 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 told a Senate committee last week that Honda failed to comply with the Tread Act. In addition to coding errors, Honda used an overly narrow interpretation of “written notice,” he said yesterday. Information from third parties, such as from police reports or 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.

Honda’s Cooperation

“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.”

Honda, the third-largest Japanese carmaker, rose 1.4 percent to 3,741.50 yen at the close in Tokyo trading. The stock has declined 14 percent this year, compared with the 8.2 percent gain for Japan’s benchmark Topix index.

Takata has been hit even harder, plunging about 52 percent amid an escalating air bag crisis affecting almost 8 million cars in the U.S. and 2.5 million in Japan. Its safety devices are vulnerable to consistently humid conditions that may compromise the airbag inflators, breaking up metal components and propelling shards at passengers when deploying.

Honda Deaths

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 U.S. air-bag recalls.

Two U.S. lawmakers yesterday 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 Senators Jay Rockefeller of West Virginia and Bill Nelson of Florida said they were unsatisfied with the company’s responses during a Nov. 20 hearing.

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 airbags, whether employees raised concern about the safety of those compounds or questions about the current production and testing of replacement airbags, the senators said. They asked for detailed answers to 24 separate questions.

NHTSA Questions

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

The investigation 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 airbags. 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 airbags 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.

‘So Harmful’

“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 airbags.

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 follow-up to that report. In January 2012, NHTSA informed Honda that it was under- reporting EWRs and Honda began looking into the issue at that time “but did not take conclusive action,” the automaker said yesterday.

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

(With assistance from Ma Jie, Craig Trudell, Kiyotaka Matsuda and Yuji Nakamura in Tokyo, Margaret Cronin Fisk in Detroit and Masatsugu Horie in Osaka.)