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Kobe Steel’s admission over falsified data sends shock waves through manufacturers across Japan

by and

Bloomberg

Kobe Steel Ltd. has unleashed an industrial scandal that is reverberating across Asia’s second-largest economy, stating that it falsified data related to the strength and durability of some aluminum and copper products used in aircraft, cars and maybe even a space rocket.

Customers including Toyota Motor Corp., Honda Motor Co. and Subaru Corp. said they had used materials from Kobe Steel that have now been acknowledged as subject to the falsification. But Boeing Co., which gets some parts from Subaru, said nothing to date raises any safety concerns.

Kobe Steel’s admission renews concerns about the integrity of Japanese manufacturers, and follows Takata Corp. misleading automakers about the safety of its air bags as well as last week’s recall of cars by Nissan Motor Co. after regulators discovered unauthorized inspectors had approved vehicle quality. Kobe Steel said on Sunday products subject to falsification were delivered to more than 200 companies, but didn’t disclose customer names. The falsifications were intended to make the metals look as if they met client quality standards. Chief Executive Officer Hiroya Kawasaki is now leading a committee to probe quality issues.

Toyota said it has found Kobe Steel materials for which the supplier falsified data in vehicle hoods, doors and peripheral areas. “We are rapidly working to identify which vehicle models might be subject to this issue and what components were used,” Toyota spokesman Takashi Ogawa said. “We recognize that this breach of compliance principles on the part of a supplier is a grave issue.”

Kobe Steel said it discovered the falsifications in inspections on products shipped from September 2016 to August 2017, adding that there haven’t been any reports of safety issues. The products account for 4 percent of shipments of aluminum and copper parts as well as castings and forgings.

“The incident is serious,” said Takeshi Irisawa, an analyst at Tachibana Securities Co., in an interview. “At the moment the impact is unclear, but if this leads to recalls the cost would be huge. There’s a possibility that the company would have to shoulder the cost of a recall in addition to the cost for replacement.”

Subaru has produced training planes for Japan’s Self-Defense Forces and wings for Boeing jets such as the Boeing Dreamliner, according to a spokesman, who added that the company was checking which planes and parts used affected aluminum. “Nothing in our review to date leads us to conclude that this issue presents a safety concern, and we will continue to work diligently with our suppliers to complete our investigation,” Boeing said in a separate statement.

Honda said it had used material subject to the falsifications from Kobe Steel in car doors and hoods, while Mazda Motor Corp. confirmed it uses aluminum from the company. Suzuki Motor Corp. and Mitsubishi Motors Corp. all said they are checking whether their vehicles are affected.

Mitsubishi Heavy Industries Ltd. spokesman Genki Ono said Kobe Steel aluminum was used in the MRJ regional jet as well as the H-IIA rocket, which was launched by Japan Aerospace Exploration Agency on Tuesday carrying a satellite. “We perceive that there was no problem as the rocket launch was a success,” he said. “Checks are under way, but at this point no large effects have been found in the manufacture of the rocket or MRJ.”

Kobe Steel CEO Kawasaki has run the company since 2013, and has recently overseen moves to expand its presence in aluminum. Earlier this year, the company said it was spending $500 million to boost output of the lightweight metal, including buying a half-stake in a plant in South Korea. Kobe Steel’s aluminum and copper operations account for about 20 percent of total sales, according to data for the quarter ended June 30.

“Aluminum is a strategic business for Kobe Steel,” said Irisawa at Tachibana Securities. “If the aluminum business doesn’t work out well, I question where the company can make money,” given the mainstay steel business remains one of low profitability, he said.

This latest scandal threatens to further undermine confidence in the quality of Japanese manufacturing. Shinko Wire Co., a Kobe Steel affiliate, said in June 2016 that a unit had misstated data on the tensile strength of stainless steel wires for springs, and that it had supplied customers with alloy that failed to meet industrial standards.

In other recent Japanese product-related cases, Takata pleaded guilty in the U.S. in February to one count of wire fraud for misleading automakers about the safety of its exploding air bags. Toyo Tire & Rubber Co. officials were referred to prosecutors in March following the company’s 2015 admission that it had falsified data on rubber for earthquake-proofing buildings. Last week, Nissan recalled more than 1 million cars in Japan.