Kobe Steel executive vice-president Naoto Umehara, right, bows his head to apologise at a news conference in Tokyo on October 8 2017. Picture: KYODO VIA REUTERS
Kobe Steel executive vice-president Naoto Umehara, right, bows his head to apologise at a news conference in Tokyo on October 8 2017. Picture: KYODO VIA REUTERS

Tokyo — Kobe Steel unleashed an industrial scandal that reverberated across Asia’s second-largest economy after saying its staff falsified data related to strength and durability of some aluminium and copper products used in aircraft, cars and maybe even a space rocket.

The company’s stock ended 22% lower in Tokyo as customers including Toyota Motor, Honda Motor and Subaru said they had used materials from Kobe Steel that were subject to falsification.

Boeing, which gets some parts from Subaru, said there was nothing to date that raises any safety concerns.

Rival aluminium makers gained.

Kobe Steel’s admission raises fresh concern about the integrity of Japanese manufacturers.

It follows Takata misleading car makers about the safety of its airbags, and Nissan’s car recall last week after regulators discovered unauthorised inspectors had approved vehicle quality.

Kobe Steel said on Sunday the products were delivered to more than 200 companies but it did not disclose customer names.

The falsification was intended to make the metals look as though they met client quality standards. CEO Hiroya Kawasaki is now leading a committee to probe quality issues.

All four plants

The fabrication of figures was found at all four of Kobe Steel’s local aluminium plants in conduct that was systematic, and for some items the practice dated back about 10 years, executive vice-president Naoto Umehara said on Sunday.

The comments were confirmed by a company spokesman.

Toyota said it had found Kobe Steel materials, for which the supplier falsified data, in bonnets, doors and peripheral areas.

"We are rapidly working to identify which vehicle models might be subject to this situation and what components were used," Toyota spokesman Takashi Ogawa said. "We recognise that this breach of compliance principles on the part of a supplier is a grave issue."

Kobe Steel said it had discovered the falsification in inspections on products shipped from September 2016 to August 2017, but there had been no reports of safety issues. The products account for 4% of shipments of aluminium and copper parts as well as castings and forgings.

"The incident is serious," said Takeshi Irisawa, an analyst at Tachibana Securities. "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-Defence Forces and wings for Boeing jets such as the Boeing Dreamliner, according to a spokesman, who said the company was checking which planes and parts used the affected aluminium.

"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 falsified material from Kobe Steel in car doors and bonnets, while Mazda Motor confirmed it used aluminium from the company.

Suzuki Motor and Mitsubishi Motors said they were checking whether their vehicles were affected.

Rocket, jet

Mitsubishi Heavy Industries spokesman Genki Ono said Kobe Steel aluminium was used in the MRJ regional jet as well as the H-IIA rocket, which was launched by Japan Aerospace Exploration Agency on Tuesday for 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 aluminium.

Earlier this year, the company said it was spending $500m to boost output of the lightweight metal, including buying a 50% stake in a plant in South Korea.

Kobe Steel’s aluminium and copper operations account for about 20% of total sales, according to data for the quarter ended June 30.

"Aluminium is a strategic business for Kobe Steel," said Irisawa at Tachibana Securities. "If the aluminium business doesn’t work out well, I question where the company can make money," given that profitability at the mainstay steel business remained low, he said.

Another scandal

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

In other recent Japanese product-related cases, Takata pleaded guilty in the US in February to one count of wire fraud for misleading car makers about the safety of its exploding air bags.

Toyo Tire & Rubber officials were referred to prosecutors in March following the company’s 2015 admission that it had falsified data on rubber for earthquake-proofing buildings.

Nissan last week recalled more than 1-million cars in Japan.

Bloomberg

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