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.”

The Toyota Group includes Toyota Motor and other companies that were founded by the Toyoda family, including in non-automotive fields like real estate, as well as car part suppliers that support the operations of Toyota Motor in what is called a keiretsu model.

Fairly common and unique to Japan, keiretsu refers to a set of companies with overlapping business relationships and shareholdings. Thus, Toyota Motor is both a shareholder – and a client – of the companies embroiled in the scandal.

But in Toyota’s case, the keiretsu model might have caused what the Asahi newspaper described in a Feb 13 editorial as a “potentially exploitative parent-subsidiary dynamic between Toyota (Motor) and each group company”.

On Jan 30, Toyota chairman Akio Toyoda apologised and blamed a “weird hierarchy” that had taken root within the Toyota Group for the scandals.

He vowed to “return to basics” and create an atmosphere where group units can “speak normally, not from a position of being above or below”.

In January 2024, Toyota Industries – the very first Toyota company, from which Toyota as it is today originated – was revealed to have doctored data for forklift engines and manipulated torque output tests for passenger car engines.

A month earlier, a whistle-blower brought to light the extent of cheating at small-car specialist Daihatsu, which was found to have manipulated safety data for a total of 64 vehicle models beginning from as far back as 1989.

These followed revelations in 2022 that Hino had been cheating on emissions and fuel efficiency results since at least 2003.

Toyota Motor is fast ramping up production of vehicles and, in 2023, its global output grew 11.1 per cent to a record 10.03 million cars, exceeding 10 million for the first time.

But, at the same time, it has been criticised for lagging behind its rivals in the development of battery electric vehicles (BEVs).

Given the scandals, Mr Aoyama said Toyota will have to “bear the costs associated with a longer lead time for product development”.

Daihatsu said in a report to Japan’s Transport Ministry on Feb 9 that among the measures it will take is to prolong the development period of vehicles by 40 per cent.

Mr Aoyama saw the stakes as high for Toyota Motor which, legally speaking, was neither involved nor directly responsible for the misconduct and yet was shouldering the blame for wrongdoing by affiliated companies.

Describing this as fulfilling Japanese cultural expectations of parents taking the blame for mischief by their children, he said: “It’s becoming very difficult for Toyota to work out the degree of interference (in each company).”

For a start, Mr Toyoda said he would attend the annual general meetings of all affiliates in June.

But analysts felt that not enough specifics have been spelt out over how Toyota will address the corporate culture issues that have arisen.

Mr Ushijima, pointing to a “once-in-a-century” shift in the automotive industry with the proliferation of BEVs and advent of autonomous driving, said without fixing these issues, “it will be difficult for a diverse group of people to come together and create innovative ideas”.