Toyota drawn into mega fraud scandal by its Daihatsu daughter

Toyota is not experiencing its best week ever, on the contrary. At its daughter Daihatsu, part of the Toyota Group, serious fraud has been discovered running already for decades. Toyota has recalled more than one million vehicles in the US with a possible airbag safety issue.

On Thursday, the Japanese Ministry of Transport started an investigation at the Daihatsu headquarters to check the results of an independent report concerning detected irregularities inside the group. The day before, the management of Daihatsu made the radical decision to stop delivering all its car models in Japan and abroad.

What’s the matter?

In the spring of 2023, Daihatsu admitted to trafficking the results of crash tests of specific models. An independent investigative commission was installed, and its report was published last Wednesday, pointing at 174 irregularities in 25 tests over the years, going back to 1989. In total, 64 car models were considered, some produced for Toyota, Mazda, and Subaru.

In typical Japanese style, Daihatsu President Soichiro Okudaira has publicly presented his “most sincere excuses” for this “breach of trust” with a profound bow in front of the cameras. “Our foul behavior only merits disdain,” he uttered.

Okudaira pointed to four different causes for what has happened: employees under severe pressure to reduce costs and eventual delays, no internal control culture, internal communication failures, and, last but not least, the fear of failing, which is very badly accepted in the Japanese culture. All four reasons are described as severe mistakes in management manuals, especially those of… Toyota.

Toyota’s responsibility

As high-ranking Toyota managers are members of the Daihatsu board, Toyota has also expressed its sincere apologies and cited that “the extreme negligence in the certification process needs a fundamental rethinking of the Daihatsu company”.

According to Tatsuo Yoshida, a Bloomberg analyst, a halt of production and delivery of produced cars will be necessary. “This will severely impact Daihatsu and its suppliers,” he estimates. The share value at the Nikkei stock market fell by 6% at the opening but recuperated to -4% later in the day.

Consequences

Daihatsu is a specialist in mini-cars that the Japanese call ‘Kei cars’. It has produced more than 1,7 million vehicles in the fiscal year March 2022-2023. Half were made in Japan, and the other half abroad, mainly in South-East Asia.

Daihatsu is a significant producer of mini-cars and mini-vans called Kei Cars in Japan. It also produces them for different other manufacturers /Daihatsu

The company was founded in 1907 and made internal combustion engines. In 1931, it launched its first vehicle (a three-wheeler), and in 1967, Toyota took control of Daihatsu.

For Mazda and Subaru, the delivery stop will have consequences, “but it won’t have a serious impact on their outright existence,” esteems Yoshida. But he thinks that if further investigations of the fraud at Daihatsu are seen as a more systematic problem, the whole car sector could be scrutinized. And that could start a ‘new dieselgate’ (referring to the VW fraud) in the car industry.

With the length of the production halt unknown, the automaker has started negotiating compensation with its suppliers to ease the negative impact on their earnings. Of its 423 significant suppliers, 47 depend on Daihatsu for more than 10% of their sales, with many of them small- and medium-sized businesses, according to the automaker.

The third-party panel tasked with investigating the test falsification has said the company’s engineers were under intense pressure to speed up vehicle development time, which led some to falsify data.

Malaysian automaker Perodua, in which Daihatsu has a 20 percent stake, said Thursday it is discussing the potential impact of the scandal with the country’s authorities as its cars were also affected by the Japanese company’s misconduct.

Recall in the US

As if it hadn’t enough concerns already, Toyota was also forced this week to recall a million cars in the US due to airbag issues. Some sensors in the passenger seat of models like the Toyota RAV4, the Highlander, the Camry, the Corolla, and Lexus models could have a short circuit, preventing the airbag from functioning when needed.

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