Another One: Japan"s "Fake Data" Scandal Hits Mitsubishi Materials

So Kobe Steel was not an isolated incident and faking data on manufacturing quality in Japan is quite common, as other lower profile scandals at Nissan Motor and Takata proved. Today another culprit has come to light: Mitsubishi Materials – which may need to re-consider its corporate philosophy “For People, Society and the Earth” and Articles 2 and 3 of its code of conduct “Safety First” and “Compliance”.

The company has admitted to falsifying data on rubber seals, brass strips and aluminum products sold to more than 250 customers in the aerospace and auto sectors. Having hit a two year high earlier this month, Mitsubishi Materials’ share price plunged during the Tokyo trading session, closing 8.1% lower on the day at 3,760 Yen, having traded as low as 3,635 Yen.

More from Bloomberg:

Japan’s reputation for manufacturing prowess took another hit as Mitsubishi Materials Corp. admitted it faked data on some products just weeks after a similar scandal engulfed Kobe Steel Ltd. Buyers of Japanese industrial goods from Boeing Co. to Airbus SE were once again scrambling to confirm whether safety had been compromised after Mitsubishi Materials said three of its units had faked data on products that may have been delivered to more than 250 customers. Its shares plunged as much as 11 percent in Tokyo, the most in eighteen months.

Mitsubishi Cable Industries Ltd. falsified data on rubber seals, while Mitsubishi Shindoh Co. misreported the strength of brass strips for auto parts, according to a statement Thursday. The products may have been shipped to 229 Mitsubishi Cable clients and 29 customers of Mitsubishi Shindoh. A third unit, Mitsubishi Aluminum Co. Ltd., also supplied non-conforming products, although it has already confirmed with customers that they are safe, the company said, adding that its investigation hasn’t uncovered any cases that raise the possibility of legal violations or safety issues.

The number of scandals of this type is a growing embarrassment to Japan’s famed manufacturing excellence and quality control.

The revelation is the latest in a series of scandals to dent the image of Japanese manufacturers and closely resembles recent admissions by Kobe Steel that it falsified data on the strength and durability of its products. In the auto sector, Nissan Motor Co. has said it conducted vehicle inspections that didn’t comply with regulations for almost four decades, while Subaru Corp. allowed uncertified workers to inspect vehicles before shipment. Takata Corp. filed for bankruptcy earlier this year because of faulty airbags.

A disconcerting feature of the breaking scandal at Mitsubishi is that like recent "incidents" at Equifax and Uber, the company was aware of the fake data problem at its Mitsubishi Cable subsidiary in February 2017, but failed to halt shipments until last month.

Japanese Trade Minister Hiroshige Seko called the matter “extremely regrettable” at a briefing Friday, and said the ministry has asked related departments to investigate its causes and is seeking an explanation from Mitsubishi Cable on why it took so long to report its problem. He added that he considers it a matter for the companies and not an industry-wide issue.

According to the statement, Mitsubishi Cable uncovered the misconduct in February and stopped shipping non-conforming products on Oct. 23; the company told its parent two days later. Mitsubishi Shindoh found out about its problem in October and stopped shipments on Oct. 18, alerting Mitsubishi Materials the following day.

As the Financial Times reports, the falsification of data stretches back to 2015 at Mitsubishi Cable and Mitsubishi Shindoh has a joint venture with Kobe Steel.

Mitsubishi Materials said in a statement that its Mitsubishi Cable Industries unit had falsified data since April 2015 on the quality level of rubber O-rings, which are used to prevent leaks in aircraft, cars and other industrial equipment. Another subsidiary, Mitsubishi Shindoh, was found to have delivered metal products with quality levels below that claimed by the company or requested by customers.

Mitsubishi Materials has a 45 per cent stake in a copper tube venture with Kobe Steel, stemming from a partnership formed in 1999 alongside affiliate Mitsubishi Shindoh. That joint venture includes the Hatano plant south-west of Tokyo that has become the focal point of Kobe Steel’s data falsification scandal, and been subsequently stripped of numerous Japanese and international quality certifications.

Mitsubishi Cable employs around 500 workers and Mitsubishi Shindoh over 1,000 out of a group workforce of some 25,000. In the year to March 2,017, group sales were $11.6 billion and net profit $252 million. “Even if Mitsubishi Shindoh and Mitsubishi Cable don’t make up a big portion of the company’s earnings, not just the short-term impact, but the mid and long-term impact on its orders is a cause of concern,” Keiju Kurosaka, senior analyst at Mitsubishi UFJ Morgan Stanley Securities, told Bloomberg.

Naturally, when these "fake something" scandals relate to high precision engineering parts, attention immediately turns to the manufacturers of commercial aircraft. Airbus published a statement saying that it doesn’t directly procure parts from Mitsubishi Materials and is investigating its supply chain. Boeing said that it’s reviewing the matter. Whether it’s a precedent for Mitsubishi Materials, time will tell, but Bloomberg notes that none of Kobe Steel’s customers have reported a safety problem so far.

Kobe Steel’s crisis erupted in early October, collapsing its shares. Although 525 customers were affected, none has yet to report safety issues and no products have been recalled, allowing its stock to recover some of its losses. As of last week, shipments to 484 clients had been given the all-clear.

Kobe blamed lax controls and too much focus on profit for its short-comings, including unrealistically high standards that exceeded clients’ expectations, which encouraged staff to disregard quality guidelines for a decade or more. The company was forced to abandon its profit forecasts and has lost quality assurance certification -- often demanded by customers as a condition of sale -- at seven of its 20 plants.

Mitsubishi Materials has to explain itself to the Japanese government by tonight. Transport Minister, Keiichi Ishii, stated that Mitsubishi Materials will report to his Ministry later on Friday with details on products and customers affected. He said that he will instruct the company to put the highest priority on safety…too late. We are nervously awaiting the next “revelation” on Japanese manufacturing.

Kobe Steel Scandal Goes Nuclear: Company Faked Data For Decades, Had A "Fraud Manual"

Last week we reported that in the latest instance of criminal Japanese corporate malfeasance, Japan"s third-biggest steel producer admitted falsifying data about the quality of steel, aluminum, copper, iron powder and other products it sold to customers across virtually every single industry. The news sent the company"s stock tumbling 43% from levels before the scandal broke, to the lowest price since 2012.

The downstream impact was quickly felt, with selling hitting names across the global supply chain...

 

... while the NYT reported that the fallout has the potential to spread to hundreds of companies. As of a week ago, the extent of the problems at Kobe Steel was still unfolding, and prompte the Nikkei newspaper to conclude that "the falsification problem has become an issue that could destroy international faith in Japanese manufacturing."

Well, as of moments ago that tipping point was this much closer, when the same Nikkei reported that some Kobe Steel plants in Japan had been falsifying product quality data for decades, well beyond the roughly 10-year time frame given by the lying steelmaker. According to the Japanese newspaper, "employees involved in the data manipulation used the industry term tokusai to refer to shipping of products that did not meet the standards requested by customers", the Nikkei source said. Though tokusai usually refers to voluntary acceptance of such products, plants sometimes sent substandard goods without customers" consent. The word was apparently in use at some plants for 40 to 50 years.

But wait, it gets better.

Not only did the company, having already been caught, lie to shareholders and rule-abiding employees how long this illegal behavior had been going on, but - in a glaring example of corporate idiocy - had effectively enshrined and codified its fraudulent ways, as the cheating procedures eventually became institutionalized in what was essentially a tacit fraud manual, allowing the practice to continue as managers came and went.

Meanwhile, the Nikkei also reports that everyone could have been in on it, as data manipulation may have occurred with the knowledge of plant foremen and quality control managers. Some shipments even came with forged inspection certificates.

Kobe Steel has tapped senior officials in the aluminum and copper business - where most of the misconduct took place - to serve on its board. How far up the chain of command knowledge of the fraud may have extended in the past remains an open question.

According to the latest update, systemic data falsification took place at no less than four Japanese production sites and appears to have affected virtually every product made by the company: the scandal has spread to the manufacturer"s mainstay steel business, with revelations Friday that steel wire was also shipped without inspection or with faked certificates. Meanwhile, the number of affected customers has swelled from around 200 to roughly 500.

One can only imagine the "honesty", measured in alpha, beta and gamma radiation, if Kobe was also behind the Tepco nuclear disaster, where of course as we leaned over the past 6 years, the amount of data fabrication was just as unprecedented. It is almost as if there is something rather rotten with Japan"s entrenched, corporate ways...

But not to worry: in an amusing twist, Kobe Steel has promised it will complete safety inspections for already shipped products in two weeks or so. A report on the causes of the fraud and measures to prevent a recurrence will come out in a month or so; we can"t wait to read the lies in that one. The steelmaker is conducting a groupwide probe that includes interviews with former senior officials. Because if there is anything Kobe will be successful at, it is diligent, honest self-reporting.

Where the company is certainly lying however, is when it told analysts earlier on Monday that "liquidity is not an issue" according to Bloomberg. Judging by the explosion in Kobe Steel CDS in recent days...

... one more gaffe by the scandal-plagued company, and Kobe Steel will be insolvent. As for all those who are considering providing liquidity to this fraud of a company, good luck with lying to yourselves that you will ever see any of that money back.

Kobe Steel Collapses 37% After Admitting Falsifying Data: "Could Destroy International Faith In Japanese Manufacturing"

Japan"s third-biggest steel producer is in trouble. After admitting falsifying data about the quality of aluminum and copper it sold, shares in Kobe Steel have collapsed 37%,  -20% limit down yesterday and another -17% at the open today following news that the falsification also involved iron powder product, in the biggest bloodbath the company has ever seen.

Bloomberg provides a quick Q&A:

1. What exactly did Kobe Steel falsify?
Data related to the products’ strength and durability. Kobe Steel says it discovered the falsification in inspections on goods shipped in the 12 months through August, affecting some 4 percent of shipments of aluminum and copper parts as well as castings and forgings. As yet, the company, which employs about 37,000 people, says there have been no reports of safety issues.

2. Was this a rogue event?
Hardly. The fabrication of figures was found at all four of Kobe Steel’s local aluminum plants in conduct the company described as “systematic.” For some items, the practice dated back some 10 years ago, according to executive vice president Naoto Umehara. Details have yet to emerge.

3. What do its customers say?
Here’s a taster. Toyota is “rapidly working to identify which vehicle models might be subject to this situation and what components were used,” according to spokesman Takashi Ogawa. "We recognize that this breach of compliance principles on the part of a supplier is a grave issue.” Toyota found the materials in question in hoods and doors, as did Honda Motor Co. Boeing, which gets some parts from Kobe Steel customer Subaru Corp., said there’s nothing to date that raises any safety concerns. Hitachi Ltd. said trains it has exported to the U.K. contained compromised metal as well as bullet trains in Japan. Mazda Motor Corp. also confirmed it uses aluminum from the company, while Suzuki Motor Corp. and Mitsubishi Motors Corp. all said they were checking whether their vehicles are affected.

After yesterday"s limit down open (and no shift), today"s 17% plunge following a report in the Yomiuri newspaper that Kobe may also have fabricated data on iron powder products used typically in components such as automotive gears, the stock smashed back to 12 month lows (and erased $1.7bn of the company"s $4.5bn market cap as of Friday)...

This is the biggest 2-day drop and the heaviest volume in the history of the stock...

The scandal that is reverberating through the global supply chain...

And casting a new shadow over the country’s reputation for precision manufacturing, and as The New York Times reports, the fallout has the potential to spread to hundreds of companies.

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.

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 center 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. Takata declared bankruptcy in June.

The extent of the problems at Kobe Steel are still unfolding: "The falsification problem has become an issue that could destroy international faith in Japanese manufacturing,” the Japanese financial newspaper Nikkei said in an article on Tuesday.