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.