Kobe Steel data fabrication scandal widens

Kobe Steel CEO Hiroya Kawasaki speaking to the media in Tokyo yesterday. He said the company has found possible further cases of data tampering, including in overseas operations.
Kobe Steel CEO Hiroya Kawasaki speaking to the media in Tokyo yesterday. He said the company has found possible further cases of data tampering, including in overseas operations.PHOTO: REUTERS

TOKYO • Kobe Steel's chief executive officer said the company's data fabrication may have spread beyond Japan, as he was ordered by the government to report on how the misconduct occurred and address safety concerns that have sparked a scare along global supply chains.

Mr Hiroya Kawasaki told reporters yesterday that the cheating scandal has left Kobe Steel's credibility at "zero", underscoring the deepening crisis at the steelmaker and the sweep of quality problems besetting Japan's once-vaunted manufacturing sector.

"The credibility of Kobe Steel has plunged to zero. We will make efforts to regain trust as soon as possible," Mr Kawasaki, 63, told reporters after meeting Japanese government officials.

A senior government official said managers at Kobe Steel were involved in fabricating data on products used in planes, trains and cars, but Mr Kawasaki said his current priority is to deal with safety checks with its clients. The official did not elaborate.

The company has found possible further cases of tampering, the CEO said, including in overseas operations.

The Ministry of Economy, Trade and Industry ordered Kobe Steel to report on the results of safety checks within about two weeks and the reasons for the tampering, along with prevention measures, in under a month.

Shares in Kobe Steel stabilised yesterday after investors, worried about the financial impact and potential legal fallout, wiped about US$1.6 billion (S$2.2 billion) off its market value in two days.

  • Some of the big names affected

  • JAPAN

    • Mitsubishi Heavy Industries has said it is investigating the safety of products from Kobe Steel. Mitsubishi Corp has lost some US$780 million (S$1.05 billion) in value.

    • Shinsho Corp, Kobe Steel's biggest customer by sales, is down 25 per cent this week.

    • Toyota Motor Corp and Nissan confirmed that Kobe Steel material has been used in hoods and rear doors of some of their vehicles.

    • Hitachi used Kobe Steel parts in trains built for the British market, the Guardian reported. A Hitachi spokesman said products used met safety standards, but they did not meet specifications that were agreed with Kobe Steel.

    • Kobe Steel also supplies materials to Honda, Mazda, Suzuki and Subaru.

    OVERSEAS

    • Ford Motor and General Motors are checking whether their cars contain falsely certified parts or components.

    • Boeing uses wings from affected supplier Subaru Corp in jets, including the Dreamliner. The US-based firm said it was checking its supply chain and had found no safety concerns so far.

    BLOOMBERG, REUTERS

Mr Kawasaki said he was not expecting to see recalls of cars or airplanes for now, and none of the company's customers has cancelled orders. Kobe Steel has no plans to sell assets at the moment, he said.

Shares in Kobe Steel stabilised yesterday after investors, worried about the financial impact and potential legal fallout, wiped about US$1.6 billion (S$2.2 billion) off its market value in two days. The shares were up 0.9 per cent by around noon (Singapore time), compared with a 0.5 per cent gain in the Nikkei 225.

In the United States, General Motors (GM), the latest major carmaker to be dragged into the widening scandal, said it is checking whether its cars contain falsely certified parts or components sourced from Kobe Steel. "General Motors is aware of the reports of material deviation in Kobe Steel copper and aluminium products," spokesman Nick Richards told Reuters. "We are investigating any potential impact."

GM joins carmakers including Toyota Motor Corp and as many as 200 other firms that have received parts sourced from Kobe Steel.

The steelmaker admitted at the weekend that it had falsified data about the quality of aluminium and copper products used in cars, aircraft, space rockets and defence equipment.

Late on Wednesday, it said it had found 70 cases of tampering with data on materials used in optical disks and liquid crystal displays at its Kobelco Research Institute.

It also found one case of falsified data on iron powder products - material used for car parts such as gears - that were shipped to a customer.

The company has said it was examining possible data falsification going back 10 years - a familiar echo of a string of other cheating scandals involving Japan Inc.

Among those affected are carmakers - among the biggest customers for steel producers - which have been seeking more advanced products to cut weight while retaining strength and versatility.

"The steelmakers are really trying to protect their turf, because this is a life-and-death situation for them," said Mr Thanh Ha Pham, senior vice-president in Japan for investment bank Jefferies Group. "It is improve or die."

The corrosive business practices have raised broader questions over corporate governance in Japan, and cast doubt on the integrity of a manufacturing industry that was once the envy of the world.

 
 

Previous cases in Japan involving falsified data included Nissan Motor, Mitsubishi Motors and Takata, which filed for bankruptcy this year over faulty airbags that were blamed for 17 deaths and scores of injuries.

In 2015, it was revealed that Toyo Tire and Rubber fabricated data to secure government approval for materials to absorb shocks from earthquakes.

Conglomerate Toshiba Corp is still battling the fallout of a scandal over reporting inflated profits.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on October 13, 2017, with the headline 'Kobe Steel data fabrication scandal widens'. Print Edition | Subscribe