October 9, 2017 4:02 am JST  (Updated October 10, 2017 5:55 pm JST)

Kobe Steel's falsified data undermines trust in 'Made in Japan'

Boeing planes, Toyota cars, JR Shinkansens among customers

YOSHIFUMI UESAKA, Nikkei staff writer

Executive Vice President Naoto Umehara, left, apologizes Oct. 8 for Kobe Steel's falsification of data regarding customer quality specifications.

TOKYO -- Kobe Steel acknowledged Sunday that it fabricated data involving clients' quality specifications for aluminum and copper parts, with the affected products supplied to some 200 companies including Toyota Motor and Boeing.

The announcement comes just days after Nissan Motor said that unauthorized workers were doing final safety checks on its cars, and undermines the trust built over years toward "Made in Japan" quality.

Inspection certificates were altered to match customer specifications, including data on dimensions and tensile strength. The improper conduct took place at four group facilities in Japan from September 2016 through August 2017, affecting 19,300 tons of flat-rolled and extruded aluminum products, 19,400 units of aluminum casting and forgings as well as 2,200 tons of copper products. This represents roughly 4% of annual sales for these segments.

Aluminum is used widely in cars, planes and high-speed trains which utilize the light-weight material to increase fuel efficiency. Kobe Steel has not disclosed a client list, but its aluminum parts are shipped to a wide range of manufacturers.

Mitsubishi Heavy Industries confirmed that the parts in question are used in the MRJ, the group's regional jet under development by a subsidiary. Aluminum connects the wing with the body of the plane, as well as in the window frames.

Toyota also acknowledged that multiple models include the affected parts, and the automaker has begun a review. Central Japan Railway, or JR Tokai, uses Kobe Steel aluminum parts in its shinkansen bullet trains.

Subaru announced on Monday that they were using Kobe Steel's data-adjusted aluminum products in their cars and aircraft. "We will put the safety of customers using our products first" a company representative said. Subaru manufactures training aircraft for Japan's Air Self-Defense Force. 

Mazda Motor also said they were using Kobe Steel material in their cars.

Kobe Steel Executive Vice President Naoto Umehara apologized for the fabrications at Sunday's news conference, while noting that the nonconforming parts had yet to trigger any safety doubts as the company continues working with customers to verify the technical impacts.

Dozens of employees, including senior managers, were involved in the misconduct. Furthermore, a review of the past 10 years revealed other incidents of falsification, suggesting a widespread organizational effort to mold the data to align with customer specifications.

Kobe Steel had been in the red for two consecutive fiscal years ended March 2017. This was the year the company had planned to bounce back into profitability, and the aluminum and copper division was the key strategic sector that the company was counting on. The sector accounts for some 25% of the Kobe Steel group's pretax profits and is on par with the company's core steel division in terms of contribution.

In May, the company announced a 55 billion yen ($488 million) investment into aluminum projects in Japan and South Korea. It is in a cut throat competition with market leader UACJ over material for airplanes and automobiles and the scandal will likely cause a dent in its recover plans.

The data in question concerns client specifications on quality and does not violate the law or rules governing Japanese Industrial Standards. Yet Kobe Steel intends to work with customers in verifying safety and accommodate requests to replace parts.

The transport ministry will call on automakers to identify the models that use the affected parts from Kobe Steel and to conduct a safety check. Depending on the extent of the data fabrication, automakers may be forced to issue a recall.

Kobe Steel suspended shipments of these parts when an internal review brought the improper conduct to light. Deliveries gradually resumed as the issue was corrected, but shipment volume is down.

These developments risk crimping the manufacturing supply chain. In Japan's rolled aluminum market, UACJ holds a 34% share, followed by Kobe Steel at 18%. Even if UACJ is asked to produce alternative products, coordinating with those customers on quality specifications is expected to take time. Furthermore, aluminum production facilities are already operating at full tilt to meet automaker demand for lighter vehicles.

Toyota Motor Corp.

Japan

Market(Ticker): TKS(7203)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 201,390.85M
Shares: 3,262.99M

Kobe Steel, Ltd.

Japan

Market(Ticker): TKS(5406)
Sector:
Industry:
Non-Energy Minerals
Steel
Market cap(USD): 2,788.96M
Shares: 364.36M

Mitsubishi Heavy Industries, Ltd.

Japan

Market(Ticker): TKS(7011)
Sector:
Industry:
Producer Manufacturing
Industrial Machinery
Market cap(USD): 13,455.91M
Shares: 337.36M

Central Japan Railway Co.

Japan

Market(Ticker): TKS(9022)
Sector:
Industry:
Transportation
Railroads
Market cap(USD): 37,775.75M
Shares: 206M

UACJ Corp.

Japan

Market(Ticker): TKS(5741)
Sector:
Industry:
Non-Energy Minerals
Aluminum
Market cap(USD): 1,346.71M
Shares: 48.32M

Subaru Corp.

Japan

Market(Ticker): TKS(7270)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 26,961.85M
Shares: 769.17M

Mazda Motor Corp.

Japan

Market(Ticker): TKS(7261)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 8,897.62M
Shares: 631.80M

Nissan Motor Co., Ltd.

Japan

Market(Ticker): TKS(7201)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 40,160.07M
Shares: 4,220.71M

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