The Automotive Scandals

It played out like a scene out of a thriller movie: Code names and secret meetings at remote locations; business suits conspiring togeth...

It played out like a scene out of a thriller movie: Code names and secret meetings at remote locations; business suits conspiring together, all in the name of greed. It’s not a work of fiction though; this is real life.

In what is the most scandalous news to come out of the automotive industry in recent years, 9 Japan-based firms and 2 executives have pleaded guilty to price-fixing automotive parts in a conspiracy that is believed to have begun a decade ago. The companies will be expected to cough up criminal fines totaling to almost USD745 million, and the individuals will be serving jail sentences from 12 to 14 months.

What began as a 2010 investigation by European Union antitrust regulators into inflated prices of wire harnesses, the system that sends information and electricity throughout the entire car, has uncovered a global operation that involves other automotive parts, and a slew of other global companies. Who knew that some nondescript wires would be the can opener to expose the worms?

Following that, manufacturers of other car parts, including windshield wipers, air bags, seatbelts and even ball bearings, were investigated and found to be tangled in the nasty web of collusion. To date, it is believed that the prices of more than 30 car parts were fixed, in various plots devised by different groups of companies.

The US Department of Justice estimates that the inflated prices amounted to about USD5 billion extra, involving 25 billion cars bought by American consumers. They reveal that the overly priced parts were sold to various American car manufacturers, including Fiat, Ford, General Motors and the US counterparts of Honda, Mazda, Mitsubishi, Nissan, Toyota and Subaru. Any American who had bought cars from these brands in the last 10 years has concrete reason to lament the price they paid.

The probe continues. The US Attorney General, Eric Holder, vowed to “check under every hood and kick every tire” until all price-fixing activities are put to a stop. Thus far, the automotive parts manufacturers appear to be giving their full cooperation, and until now, the involvement of 20 companies and 21 executives has been uncovered. These companies will be paying USD1.6 billion in fines. Only USD3.4 billion more to go to simply recover the estimated USD5 billion difference, not taking inflation into account.

Wire harnesses blew up the can of worms

This latest scandal hurt the consumers’ pockets, but how about the one that endangers their lives? Toyota has NOT been making headlines when it should. Their vehicle recalls happen so often, that it is now considered a norm, hence no longer newsworthy. Cases of their ‘runaway cars’ do not get as much media attention or fades very quickly into background static.

In December last year, Toyota paid USD1.1billion to settle lawsuits regarding ‘unintended acceleration’ (UA) of their Toyota and Lexus models. The case involved 16 million owners of the models in question. Initially, Toyota had maintained that most of the UA cases were caused by floor mats becoming stuck under the accelerator pedals. But they subsequently announced recalls of millions of cars worldwide, including for “potentially faulty accelerator assemblies”. And then they paid out more than USD1 billion dollars for what they claimed is the fault of car mats? Doesn’t sound like the actions of an innocent, does it?

Then, in March this year, Betsy Bejaminson, a freelance translator who edited hundreds of Toyota’s internal memo on UA, blew the whistle on them. She revealed that Toyota engineers were internally befuddled by the UA problem.

“They sometimes admitted it was the electronic parts, the engine computer, the software, or interference by radio waves,” she said, in a personal statement. She also revealed that they went out of their way to search for floor mats that would cause the accelerator pedal to get stuck.

The turning moment for her was when she observed the determination of internal engineers to fix the acceleration issue for the car that chauffeured Japan’s Crown Prince around. Conversely, they had made every effort to deter investigations into car crashes involving ordinary folks, many of which had killed entire families. Some critics have blamed the problems on Toyota’s relentless determination to dominate the automotive industry too quickly, which resulted in incomplete product and design stages, and overworked employees.

Last month, on 17 September 2013, Eiji Toyoda, a prominent figure in Toyota, passed away at the age of 100. As Chairman and President, he had brought the company to global prominence during the 70s until the 90s. He had helped implement the kaizen way that Toyota became emulated for, which encourages continuous improvements. One wonders that in his last days, what he thought about the legacy that he was leaving behind, the company that Toyota had become. Would he have been disappointed?


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