Toyota’s runaway success behind pressure-cooker climate that led to data-fixing scandals

TOKYO – The intense pressure to meet unrealistic timelines and an inability to say no have emerged among the key reasons behind a litany of data fraud scandals that threaten to tarnish the Toyota name.

The fallout is continuing even as Toyota Motor, Japan’s most valuable company, reported record earnings on Feb 6, sending its shares to fresh highs a day later.

Data falsification has been found at Toyota Industries, Daihatsu and Hino, three firms that are part of the Toyota Group, an operational alliance of 17 companies that includes the flagship behemoth Toyota Motor.

The three firms make components for Toyota cars.

Toyota Motor produces the Toyota brand of cars and trucks, as well as the luxury car brand Lexus.

Apart from supplying Toyota car parts, Toyota Industries also makes diesel engines, while Hino produces trucks, buses and passenger cars.

Daihatsu, a wholly owned subsidiary of Toyota Motor, makes small cars.

In 2023, Toyota’s group global sales hit 11.2 million vehicles, making it the world’s largest carmaker for the fourth straight year.

On Feb 13, Toyota Motor’s top brass said they would take over leadership of Daihatsu with effect from March 1.

Japan has had its fair share of data-rigging scandals in recent years, across the government, business and academic sectors.

Among others, the government had inflated its number of disabled employees, and a research team at the space agency had cooked research findings, while fraud has been uncovered at numerous manufacturers.

Toyota’s case, analysts said, epitomised the risks of a corporate culture where there is pressure to perform and conform to orders.

“A culture of silence, poor communication and inadequate internal control systems are said to be hotbeds of misconduct,” top corporate governance lawyer Shin Ushijima, of Ushijima & Partners, told The Straits Times.

As uncovered by internal probes into the three companies, behind the cutting of corners were common reasons such as unreasonable development schedules; a lack of manpower; an organisational structure where those responsible for development and certification tests are not segregated; a climate that discouraged raising problems to superiors; and a corporate culture where failure and inability are not an option.

At its heart was an immense pressure to streamline and improve performance and economies of scale, even as Toyota Motor ramped up global production of vehicles, which in turn necessitated more orders for car components.

“What is apparent is that the front line was under pressure not to upset the flow of the system,” said Mr Ushijima, who also heads the Japan Corporate Governance Network.

“It would be putting the cart before the horse if advance collaboration, which is supposed to be a strength for Toyota, became a catalyst for the fraud,” he added.

Mr Satoru Aoyama, an analyst and senior director at Fitch Ratings Japan, agreed.

He described the wrongdoing as due to “operational risk”.

“The biggest underlying problem is the operational scale of the Toyota Group, which is highly efficient but has no flexibility or room for manoeuvre,” he told ST. “But it is precisely these features that have supported Toyota Group’s continuous growth.”