Japan: scandals, falling sales, yet defiant automakers

GlobalData
Mon, Aug 5, 2024

The Japanese auto industry has been mired in several scandals this year. It all started in December last year when the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) found some irregularities in Daihatsu’s vehicle certification process. The MLIT ordered Daihatsu to suspend deliveries of all its vehicles (a total of 64 models) until it finished the investigation and re-approved the certification.

Daihatsu may not be well known outside of Asia, but it is in the Toyota Group and, along with Suzuki, is the leading Mini Vehicle manufacturer in Japan. Mini Vehicles (i.e., vehicles with engine size 660cc or less) account for almost 40% of total Light Vehicle sales in the country. Therefore, Daihatsu’s production and delivery suspension (for a few weeks to a few months, depending on the model) resulted in a severe shortage of Mini Vehicles.

Then, the MLIT found similar issues with Toyota Industry, a Toyota affiliate that manufactures diesel engines for ten Toyota models, including the Landcruiser and the Hilux. The irregularities resulted in the suspension of deliveries of those ten Toyota models for a few weeks.

Finally, in early June, the MLIT discovered problems with the certification process for 35 models at four OEMS: Toyota, Mazda, Honda, and Suzuki. Of the thirty-five models, only five are currently manufactured (three models at Toyota and two at Mazda) and their production was halted. The other thirty models (with specific model years) are no longer produced, but their sales were all suspended for a few weeks.

Since then, the MLIT has investigated the OEMs and confirmed that the affected models conform to the government-mandated technical and safety standards. The issue was with the certification process, not with the vehicles themselves. The automakers have already resumed deliveries of vehicles, except, at the time of writing, the three popular Toyota models - the Yaris Cross, the Corolla Fielder, and the Corolla Axio.

Nonetheless, the impact of the scandals was enormous. In the first half of this year, total Light Vehicle sales in Japan declined by 13% year-on-year. Sales of Mini Vehicles plunged by nearly 18% year-on-year. Daihatsu, Toyota, and Mazda registered year-on-year declines of 61%, 23% and 31%, respectively.

Source: GlobalData

So, what was wrong? The MLIT found that the automakers provided false data and/or data based on tests that were not implemented as required.

How did the automakers respond? The heads of the automakers all bowed deeply and apologised at a press conference – a familiar scene after a scandal in Japan. However, they were defiant. They did acknowledge that some tests were not conducted properly, but they all insisted that the technical and safety standards of their vehicles do meet or even exceed the certification standards – and that their vehicles are safe. For example, Toyota explained that it had conducted a crash test on two models, using a crash cart weighing 1,800 kg, instead of the required 1,100 kg, to create a more powerful collision. In another case, Toyota implemented stricter test conditions for airbags by setting a timer to ignite a fire, whereas the government-required method did not necessitate a timer. Another example disclosed was that to evaluate the movement of objects in the trunk area and their potential impact on passengers in case of a crash, Toyota used old concrete blocks, instead of the new ones that were required. Toyota’s point is: what difference would the age of the blocks make if their weights were the same?

After hearing such defiant statements, local auto analysts all stated that the automakers must comply with government regulations – any incompliance would jeopardise consumer trust in Japan and overseas. However, they were also quick to point out that the government’s cumbersome and complex certification process is a problem, too, as electrification and an increasing number of in-vehicle computer-controlled systems have made the process very time-consuming and costly for automakers.

At the press conference, Toyota chairman Mr. Akio Toyoda said without hesitation that no one in his company, including him, understands the whole picture of the complex certification process. That has aroused criticism of gross negligence in the management. Yet, many analysts are sympathetic to the automakers. Reportedly, there are over 170 items to be tested per vehicle, with each test, requiring specific and complex conditions and methods. According to Toyota Times (Toyota’s online media), the automaker conducts certification tests for about fifty models a year, and in the last ten years submitted about 7,000 test reports to the MLIT.

Then, the MLIT held a rare press conference and rebuked the criticism. The officials insisted that the Japanese certification process conforms with the UN standards under the “World Forum for Harmonisation of Vehicle Regulations (WP29)” in which most major countries in the world participate, therefore, the automakers must comply with them. Before the press conference, however, the Minister of the MLIT, Mr. Tetsuo Saito mentioned that the MLIT is willing to streamline the process whenever possible, hinting that there are bureaucratic hurdles, in the process.

Finally, how did Japanese consumers react to all these scandals? Of course, they were stunned; some may have held off on vehicle purchases. Yet, most of them will probably go ahead with purchases as soon as the vehicle of their choice becomes available. It appears that they don’t care about the scandals very much, as long as the cars are safe. And if they are to avoid the five brands in the scandals (Toyota, Honda, Mazda, Suzuki, and Daihatsu), what else is left? Thus, we expect sales will rebound quickly as soon as supply improves in H2 2024.

Meg Sunako, Senior Analyst, Economics and Topline Forecasts, GlobalData

This article was first published on GlobalData’s dedicated research platform, the Automotive Intelligence Center.

"Japan: scandals, falling sales, yet defiant automakers" was originally created and published by Just Auto, a GlobalData owned brand.

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