Daihatsu Faces Potential 100 Billion Yen Loss Amid Safety Test Scandal

Daihatsu Motors, a unit of Japanese auto giant Toyota is expected to incur losses exceeding 100 billion Yen due to the recently surfaced safety test scandal. The estimate includes potential costs from a factory shutdown, compensation to suppliers, and additional expenses related to investigations and safety tests.

Daihatsu has temporarily halted production in Japan, and although shipments have now started to resume in certain markets, the company faces challenges in negotiating compensation with suppliers and supporting affected dealerships. If the scandal’s impact leads to consolidated losses, it would mark Daihatsu’s first such losses in 30 years.

Japan accounted for about 60% of Daihatsu’s 1.42 million vehicles manufactured in the last fiscal year, playing a crucial role in Toyota’s strategy for minicars in Japan and compacts in emerging markets. Although Daihatsu contributes approximately 3% to Toyota’s total operating profit, a hit of over 100 billion yen could still impact Toyota’s earnings.

The scandal also adds uncertainty to Toyota’s group governance, as another of its subsidiaries Hino last year was found guilty of falsifying emissions data since 2003. Daihatsu may also face further penalties, including the revocation of production certifications.

The latest probe further threatens the company’s reputation. According to a report by the investigative committee, so far 174 more cases have been found of Daihatsu manipulating data, making false statements or improperly tinkering with vehicles to pass safety certification tests.

As of March, Daihatsu’s liquid assets minus liabilities stood at just over 500 billion Yen and Toyota maintains solid finances. However, the full extent of the scandal’s impact on Daihatsu and its parent company is yet to unfold, with investigations ongoing and potential regulatory penalties on the horizon. In response, Toyota has promised to shake up its subsidiary, saying in a statement last week that “fundamental reform is needed to revitalize Daihatsu.” Toyota’s statement reads:

“This will be an extremely significant task that cannot be accomplished overnight, it would require a sweeping review of management, operations, and how the unit was structured. We recognize the extreme gravity of the fact that Daihatsu’s neglect of the certification process has shaken the very foundations of the company as an automobile manufacturer.”