New Cover-Up Allegations Hobble Japan’s Fourth-Largest Automaker
By Anthony Faiola
Washington Post Foreign Service
Tuesday, July 6, 2004; Page E01
YOKOHAMA, Japan — Shiho Okamoto was killed while walking home from a neighborhood video store with her two young sons when a 220-pound wheel fell off the front axle of a Mitsubishi truck moving behind her. The wheel crushed Okamoto’s skull and spine.
To the Kanagawa Prefecture Police Department in Yokohama, a port city 19 miles south of Tokyo, the detached wheel seemed too odd to write off as an accident. Mitsubishi Motors Corp. — Japan’s fourth-largest automaker — was implicated in 2000 in a cover-up scandal that resulted in the belated recall of about 600,000 cars and trucks, but company officials said they had resolved problems and repeatedly blamed poor maintenance by the trucks’ owners.
Police investigating the January 2002 death of 29-year-old Okamoto, however, said they learned of a similar incident with a Mitsubishi bus in the southern city of Hiroshima and had evidence suggesting that company representatives were fanning out across Japan, replacing parts and begging vehicle owners not to go public with their experiences.
A raid on Mitsubishi offices five months ago yielded the evidence that exploded into one of the largest corporate scandals ever in Japan. Authorities say seized documents, and subsequent admission of fault by Mitsubishi Motors Corp. (MMC) and a spinoff, Mitsubishi Fuso Truck & Bus Co., indicate that since the 1980s, the automakers systematically hid defects involving 800,000 vehicles. Among the hidden flaws were defective front axles on the same type of truck as that involved in Okamoto’s death.
"I will never forgive Mitsubishi," Okamoto’s mother, Yoko Masudo, 54, said at her lawyer’s office in central Yokohama. Mitsubishi Fuso finally admitted responsibility in the Okamoto case in late March. MMC and Mitsubishi Fuso since have also admitted long-hidden defects in clutches, brakes and other car parts collectively involved in dozens of accidents that resulted in several injuries and at least one other death.
"They lied to the public," Masudo said. "They hid defects which they knew about for years. My innocent daughter paid with her life. We still don’t know how many more people have been hurt by this company."
Most of the defective vehicles were sold in Japan, but some were shipped to Europe and other parts of Asia. The companies say none of the defective cars or trucks were sent to the United States.
Corporate pride is a pillar of the national identity, and the scandal has shocked Japan. At least 40 prefectures and local governments banned the purchase of Mitsubishi vehicles, and the Japanese press is issuing almost daily reports on fires and accidents involving Mitsubishi cars and trucks. Mitsubishi sales are plummeting, and analysts say the company may not survive.
National regulators, stung by criticism that the discovery of the company’s second cover-up in four years came only after an investigation by a local police force, are now randomly stopping Mitsubishi trucks and buses for inspections and demanding weekly updates from the automakers on internal reviews.
Investigators are reviewing data regarding Mitsubishi vehicle accidents — including some claims that Mitsubishi cars, trucks and SUVs spontaneously caught fire on Japanese roads and highways. Twelve former top Mitsubishi auto executives — including former chief executive Katsuhiko Kawasoe — have been arrested on charges of negligence or falsifying documents. Five of the arrests were connected directly to the Okamoto case cover-up.
Mitsubishi officials concede that a culture of cover-up existed at the company. Its revelation is doing more than threaten the survival of a once-venerable automobile brand founded in the midst of Japan’s great period of industrialization in the late 19th century. The case also cast a spotlight on the ingrained tradition of corporate conformity and strict obedience to bosses, regardless of their ethics. The tradition lingers even though some companies have moved toward more freedom and innovation as the nation emerges from a 13-year economic slump.
More important, the case raises questions about one of the basic tenants of Japanese-style capitalism — the cultural emphasis on the prosperity of large corporations at the expense of consumer rights, critics say.
Companies in Japan face relatively low regulatory fines for product defects or cover-ups, and law largely shields them from large punitive damages in consumer lawsuits. The societal shame of a company’s brand name on a faulty product is expected to be Japan’s most powerful corporate regulator.
That philosophy helped give rise to the mega-conglomerates and industrial groups that fueled Japan’s transformation into the world’s second-largest economy over the past century. But consumer activists say that same philosophy — while taking a toll on the Mitsubishi auto brand as customers flee its dealerships — also allowed the brand’s fatal flaws to go unchecked.
"The fact is, there were no serious regulatory or legal penalties the company faced even if they were discovered again," said Masato Nakamura, a legal expert and adviser to Japan’s largest consumer activist groups. "There was less risk to their lies."
"It shows us how consumer interests are considered second to a company’s interest in Japan," Nakamura said. If Okamoto had not died, "we may never have known about this huge cover-up."
Japanese consumers lack many of the protections provided in the United States and elsewhere. A product-liability law enacted in 1995 lowered somewhat the burden of proof in consumer-protection cases, but, for example, companies accused of making defective products in Japan do not have to disclose product designs or safety records. Financial penalties for cover-ups remain slight.
In July 2000, when 14,000 people in Japan got sick after drinking milk from the Snow Brand dairy that was contaminated by bacteria, the head of the factory that processed the bad milk was fined $1,000 and received a two-year suspended sentence.
The company was fined $4,500 by the Osaka District Court — an amount consider by consumer-rights groups to be a slap on the wrist.
Also in 2000, Japan’s transport ministry exposed Mitsubishi’s cover-up after being led by a tipster to where documents marked secret were hidden. Three years later, the maximum fines for falsified reports by auto companies were increased to about $1.8 million. But ministry officials say Mitsubishi may be exempt from paying those higher fines because the "initial decision to cover up the defects" appears to have been made before the new law was enacted.
Although DaimlerChrysler AG bought into Mitsubishi Motors in 2000 with hope of turning the company around, shareholder groups say its corporate culture continued. In a country still struggling with traditions that do not reward those who rock the boat, top executives were viewed as irreproachable figures who easily succeeded in squelching internal criticism or debate that could have prevented the cover-ups or exposed their full scope earlier.
Yoichiro Okazaki, MMC’s newly appointed chief executive, apologized for the "great trouble and concern" the company has caused. "The challenge now is if we can continue to exist as an automaker," he said at a shareholder’s meeting last week.
Last month, MMC reported a drop of more than 64 percent in domestic sales, after a 56 percent drop in May. The company is cutting executive pay by as much as half and trimming rank-and-file salaries by at least 5 percent. Mitsubishi plans to cut 11,000 jobs worldwide — a quarter of its workforce — over the next three years. The company is closing two factories in Japan and moving its headquarters from Tokyo to Kyoto.
DaimlerChrysler backed out of a deal that analysts estimate would have tendered a $1.8 billion lifeline to MMC in April. That left the Mitsubishi Group — the corporate alliance that was one of Japan’s largest family-owned conglomerates dismantled during the U.S. occupation after World War II — to come to the automaker’s rescue with a $2.6 billion aid package.
Bloomberg News reported late Monday that the Japanese government is examining ways to help save the automaker from bankruptcy.
Naoko Nemoto, a banking analyst and director at Standard & Poor’s in Japan, called the deal "a ghost of Japan’s past," when powerful groups of allied companies protected weaker members whose fates, economists say, are better left to the marketplace.
The Mitsubishi Group — a collection of more than two dozen companies involved in a wide variety of businesses such as banking, real estate and shipbuilding that still encourages its employees to buy Mitsubishi cars to prove their safety to friends and neighbors — has defended its decision by saying the bailout is aimed at "implementing sweeping reforms to corporate culture and establishing corporate ethics that can regain the trust of customers and society."
After the way the Mitsubishi auto executives treated customers in Japan, however, some shareholders are questioning whether the brand is worth saving. one unidentified shareholder, speaking at the company’s annual meeting in Tokyo last week, rose to his feet and said, "I sometimes wonder if the company should just humbly bow its head and pull out of the auto business."