Kobe Steel managing executive officer Yoshihiko Katsukawa at a news conference in Tokyo. (Reuters)
Tokyo, Oct. 11: Big manufacturers of cars, aircraft and bullet trains have long relied on Kobe Steel to provide raw materials for their products, making the steel maker a crucial, if largely invisible, pillar of the Japanese economy.
Now, Kobe Steel has acknowledged falsifying data about the quality of aluminum and copper it sold, setting off a scandal that is reverberating through the global supply chain and casting a new shadow over the country's reputation for precision manufacturing.
The fallout has the potential to spread to hundreds of companies. Big multinationals, including automakers like Toyota Motor, General Motors and Ford, as well as aircraft manufacturers like Boeing and Mitsubishi Heavy Industries, are investigating.
The companies are trying to determine if substandard materials were used in their products and, if so, whether they present safety hazards. It is a daunting task, since multinationals source from various suppliers and producers.
The scandal hits a tender spot for Japan. The country relies on its reputation for quality manufacturing as a selling point over China and other countries that offer cheaper alternatives. But its reputation has been marred by a series of problems at some of Japan's biggest manufacturers.
Last week, Nissan Motor said unqualified staff members had carried out inspections at its factories, prompting the carmaker to recall 1.2 million vehicles, though it was not clear if the quality of the vehicles had been affected.
Mitsubishi Motors and Suzuki Motor both admitted last year that they had been exaggerating the fuel economy of their vehicles by cheating on tests.
Perhaps the biggest blow to Japan's reputation for quality has come from Takata, the airbag maker that was at the centre of the largest auto safety recall in history, involving tens of millions of vehicles. Its faulty airbags have been blamed for more than a dozen deaths.
Toshiaki Oguchi, director of Governance for Owners Japan, a corporate watchdog, said that Japanese companies were generally diligent about quality, but that when cheating occurred - because of competitive pressure or other factors - it could too easily go unchecked. Japanese companies, he said, tend to discourage thorough examination or criticism, either from employees or from independent outsiders.
"When something goes wrong, companies always hire a committee of outsiders to examine what happened," Oguchi said. "But why not be proactive? Why not have people reviewing procedures all the time?" The extent of the problems at Kobe Steel are still unfolding.
Kobe Steel said on Sunday that employees at four of its factories had altered inspection certificates on aluminum and copper products from September 2016 to August this year. The changes, it said, made it look as if the products met manufacturing specifications required by customers - including for vital qualities like tensile strength, a measure of stiffness - when they did not.
Today, the company said it was investigating possible data falsification involving another product, powdered steel, which is used mostly to make gears. The company said the powdered steel it was examining had been sold to one customer it did not name.
Kobe Steel added that it was examining other possible episodes of data falsification going back 10 years. The company did not provide significant details on the discrepancies, making it difficult to immediately determine if they posed a safety threat. No deaths or safety incidents have been attributed to Kobe Steel.
The company's share price dropped sharply yesterday, the first day of trading after a holiday, and as of this morning in Tokyo had lost about one-third of its value since last week.
"The falsification problem has become an issue that could destroy international faith in Japanese manufacturing," the Japanese financial newspaper Nikkei said in an article.
Even as Japan has given up its lead in technologies like televisions, cellphones and computers, it still excels in highly valued products used behind the scenes, including precision machinery, specialty chemicals, sensors and cameras. Although China is the world's largest steel maker, Japan still exports large amounts of iron and steel there.
One of the products at the centre of the scandal, rolled aluminum, is widely used in the transportation industry because it is light. The lighter a car, train or airplane, the less fuel required to propel it.
NEW YORK TIMES NEWS SERVICE