There are scandals that flit out of the news quickly, and there are scandals so big they get their own name (Watergate, Dieselgate, Firestone). What’s going on with Toyota and its subsidiary Daihatsu is almost certainly going to be the latter. The size, scope, and meaning of this growing scandal is incredible and potentially terrifying.
The end of the week is a great time to announce bad news because people are distracted by the weekend and not sitting bored at their computers. The end of the year, when folks start heading to their in-laws, is an even better time. The end of the week at the end of the year? Put on your gloves, we’re taking out the trash.
In addition to the Toyota scandal, there’s a massive Honda recall worth discussing, a potential Chinese EV tariff, and a look at dealership profits.
The theme of this morning’s The Morning Dump is Bah Humbug.
The Toyota Daihatsu Scandal May Affect 64 Different Models And 3 Engine Lines
Toyota’s budget brand Daihatsu really screwed up; I’m going to do my best to put this into some usable context for readers who, by and large, haven’t seen a Daihatsu car since the ’90s.
This story is a Taco Bell Crunchwrap Supreme of Ignominy, where the flour tortilla is negligence, the seasoned beef is corporate pressure, the ripe tomatoes are faked safety test results, the crunchy outer shell is the shaken trust of consumers, and the warm nacho cheese sauce is the creeping understanding that this has likely been going on for more than a decade.
As background, Daihatsu is one of Japan’s oldest automakers and, in the middle of the Bubble Era, became primarily owned by Toyota. By 2016, Daihatsu became a solely owned subsidiary of Toyota with a long-term goal of having “Daihatsu and Toyota to attain their joint goal of achieving sustainable growth.” This was a big project of then Toyota President (now Chairman) Akio Toyoda.
Here’s what Toyoda said at the announcement of the deal:
“Toyota and Daihatsu have frequently held discussions and shared opinions on the topic of sustainable growth. Last autumn, we told Daihatsu that we wanted to strengthen the relationship between our two companies in order to enable us both to make ever-better cars. President Mitsui from Daihatsu might have been a bit taken aback at first, but―as we kept talking―he told me that he hoped to maintain Daihatsu’s unique approach to manufacturing, but that, on the other hand, the company’s resources would limit his ability to expand the scope of the business, embrace the next wave of technologies, and improve competitiveness.”
Growth happened, but likely not in a sustainable way, because an investigation into safety irregularities earlier this year has blossomed into a revelation of decades of faked tests and other malfeasance that metastasized after Toyota took over.
Japanese transport ministry officials inspected Toyota subsidiary Daihatsu on Thursday, one day after officials announced it was suspending the small car unit’s shipments of all vehicles in and outside Japan after an investigation found improper testing involving 64 models.
The safety test irregularities earlier this year prompted an independent panel investigation, which found widespread and systematic problems at Osaka-based Daihatsu Motor Co. It is the latest of safety or other violations found at at least five of Japan’s major automakers in recent years.
It gets worse when you read Toyota’s long apology and explanation, which it admits has “shaken the very foundations of the company as an automobile manufacturer.”
As mentioned above, Toyota created an independent Third-Party Committee to look into these irregularities and what they found was pretty terrible, including using one airbag module in safety testing and then a completely different one in manufacturing. Here’s how Toyota described it:
Over the course of the investigation by the Independent Third-Party Committee, Daihatsu received some information regarding models that may have been involved in the procedural irregularities. In response, Daihatsu has been conducting one-by-one in-house technical verifications and actual vehicle testing for these vehicles to ensure that their safety and environmental performance meet legal standards.
In the final stage of the investigation, it was discovered that a different airbag control unit (ECU) than the mass-production model was used for the airbag tests for Daihatsu Move / SUBARU Stella, Daihatsu Cast / Toyota Pixis Joy, Daihatsu Gran Max / Toyota Town Ace / Mazda Bongo. Although technical verification confirmed that the airbag met standards of occupant protection performance, in the course of testing, it was found that the “Safety Performance Standard for Occupant Evacuation (Unlocking)” in the side collision test of Daihatsu Cast / Toyota Pixis Joy may not comply with the law. At this time, we are not aware of any accident information related to this matter, but we are conducting thorough technical verification and investigating the cause to take necessary measures as soon as possible.
That’s serious and anyone who has been injured in a crash in any of these vehicles should maybe reach out to a lawyer. The oldest vehicle listed here is the iQ, which was built in Toyota’s Takoaka Plant and went on sale in 2008.
How did this happen? There’s a hint in Toyota’s account that makes total sense to me:
Since 2013, Toyota has been increasing the number of OEM models it receives from other companies, mainly compact vehicles. We deeply regret that the development of these vehicles may have been a burden on Daihatsu and that we were not aware of the situation with the company’s certification operations.
Emphasis mine. Isn’t this how it always happens?
A University of Virginia professor did a study of Volkswagen’s Dieselgate scandal and came up with three root causes, the first of which seems the most relevant here:
The pressure from the top was intense. VW’s 25-page Code of Conduct, on which every employee was ostensibly trained in ethics, seemed irrelevant when contrasted with management’s autocratic leadership style and single-minded goal to succeed at any cost. What’s more, the company’s engineering reputation was at stake, and the consequence of failure for the German economy and reputation around design and manufacturing would be substantial.
It seems that this pressure is what Toyota is hinting at and the impact on the Japanese economy is pretty similar, with the company assuring its suppliers it would help support them through these difficult times.
The actual safety impacts of these are less clear (does only crash-testing one side of a car matter that much?), but the idea that Toyota’s growth through this period is somehow built on practices that were not, in fact, sustainable isn’t a small thing.
[Ed Note: It’s not always easy to understand how serious things are when it comes to breaches of Japanese government regulations, and certainly the profuse apologizing you see here makes things seem unbelievably serious. That might be the case! (A stop-sale is serious any way you slice it, and so is knowingly using the wrong hardware in safety testing). But at the same time, the heavy apologizing — something we don’t see as much of from U.S. manufacturers unless things are really, really serious — is not really as uncommon among Japanese automakers. It’s just a part of the culture; I figured that was worth noting. -DT].
Honda’s Not-So-Happy Days
Things aren’t ideal in Hondaville, with the company having to recall about 2.5 million vehicles due to a malfunctioning fuel pump that can reportedly fail while driving.
Per Reuters:
The recall includes certain models of the Japanese automaker’s most popular models such as the 2018-2020 Honda Accord, Civic, CR-V, HR-V, Ridgeline, Odyssey and some more Acura models.
According to the NHTSA, the fuel pump inside the fuel tank may fail. Owner notification letters are expected to be mailed by February next year.
If you have one of these popular vehicles keep your eyes open for a letter.
Average Pretax Profit Down 20% Through Q3 For Dealers
Despite a lack of cars over the last few years or, rather, because of the lack of cars over the last few years, dealers have generally done exceedingly well for themselves.
What goes up must come down and that’s the case for dealerships as part of what some, according to Automotive News, are calling “The Great Normalization” of the automotive industry.
Pretax profits for the average dealership slipped by nearly a fifth and gross profit per new vehicle sold tumbled 26 percent through the first nine months of 2023 compared with the same time last year, according to an inaugural report by the Presidio Group, an investment banking and buy-sell advisory firm in Denver and Atlanta, and NCM Associates, a dealership training and consulting company.
This will be something I’ll be keeping an eye on next year as it’s another good data point to understand where the market is.
What Exactly Are We Doing Here?
Credit to The Wall Street Journal for cool stipple portraits and also this scoop that the Biden administration is exploring raising the tariffs on Chinese EVs.
Here’s the key part:
Chinese EVs are already subject to a 25% tariff, which has helped prevent subsidized Chinese automakers from making inroads into the U.S. market. Raising that tariff likely would have little immediate impact on U.S. consumers.
Other targets for potential tariff-rate increases are Chinese solar products and EV battery packs, the people said. While the U.S. now primarily imports solar material from Southeast Asian countries, China is still an important supplier of EV batteries.
Raising some tariffs could allow President Biden to signal he is tough on China as he approaches a 2024 re-election campaign that could again see him face Donald Trump.
The Biden administration is also considering lowering tariffs on some Chinese consumer products that officials don’t see as strategically important, in addition to the potential increases on clean-energy products, the people familiar with the conversations said.
I’ve said this before, but if we were only concerned about the environment (and obviously I realize we have other important interests) it’s possible we’d welcome the price competition and volume of cheaper EVs from China. Obviously, the stability of U.S. manufacturing and our ability to source items from places that aren’t China is important to this administration and the one before it.
The timing of this is also interesting because, frankly, with many cars no longer qualifying for the $7,500 tax credit I do think the 25% tariff probably isn’t high enough to prevent some Chinese companies from being price competitive. If the administration raised it to even 30% that’s a big difference, potentially.
What I’m Listening To As I Write This
It’s hard to believe that “Wide Awake!” is the seventh album by Parquet Courts as it sounds like both the first and the 900th.
The Big Question
What should we call this Daihatsu scandal? What do you make of it?
So. Buying stock in Toyota and Honda tomorrow?
Regarding the Honda recall, is there a good engineering reason that many manufacturers put fuel pumps inside the tank? It turns a minor issue into a pain in the rear.
Packaging optimization is my guess,
Given that would displace gas, thus necessitating a larger tank to contain both fuel and pump that doesn’t seem like a good reason.
the fuel cools the pump. or that is what I’ve been told. but the m f in filter has to be there too? that is what seems wrong.
I agree, a fuel filter should be outside the tank. A In tank filters is about as dumb as dipstickless transmissions.
Putting the pump inside the tank submerged in fuel eliminates the possibility of vapor lock, as well.
Related thought: How do they actually make non sparking motors to go inside fuel tanks?
I’ve looked for the answer several times over the years and never got a great answer
is the answer brushless? just a guess
I thought that was the answer too,but i’ve seen several types that have brushes
Brushed motors are far and away the most common for fuel pumps.
No need there is not enough oxygen in the tank.
I’ve heard this before but struggle to believe it.
I can come up with scenarios where there’s lots of fresh air in the tank.Just after changing an in-tank filter for example.The first start at the factory when there’s a small amount of fuel added to the tank is another.
It really screws with my brain that there could be zero risk
This is one of those things like “why doesn’t glue stick to the inside of the bottle?” which is best not to think about too much.
But doesn’t it? The real question is why doesn’t glue stick to glue, letting you get any out at all!
I’ve changed more in-tank pumps than I can count and never had one blow up on me.
I was really hoping that this news but Daihatsu was going to be that the shitbox engine that the Daihatsu Rocky was given had finally been the subject of a recall and that I would be made whole after it’s destruction, especially after the Charade pun in the title…since they used the same motor
/screw you, HD motor
Never met anyone with an opinion (of any sort) about the HD engine before…
oh, I am not alone, good sir
Daihatsu II: Die Hatsuer
So I know it wasn’t the point of the article but I went down a google rabbit hole and …
Dear Lord how badly do I want a Mazda Bongo Brawny now.
>it’s possible we’d welcome the price competition and volume of cheaper EVs from China
Hard pass. China sells below cost and what little cost their is comes from abusive workplace practices and sub-poverty wages. I’m pro-free trade in a lot of ways but only when everyone agrees to the same rules.
Boeing and Airbus scream profanities at each other when they think the other company is getting unfairly subsidized. China’s manufacturing is a whole different level. Labor abuse, unknown quality control on the far ends of the supply chain, and a government that has no problem subsidizing entire sectors of the economy to grab and maintain market share. It’s command capitalism where you can sell at a loss because the CCP is a bottomless piggybank for manufacturers who rise to prominence.
And it will be disposable junk at the prices they’ll sell at, which doesn’t seem too environmental to me. That doesn’t get into the pollution in shipping them across the Pacific, but I suppose Japan-built cars aren’t much better in that regard, though they’re likely to last longer in service.
50percentgate.
Seems like a nothing burger for the U.S. Maybe SUEDaihatsu for markets affected.
7-layers of mismanagement. Which one is the layer that causes the projectile diarrhea?
All of them.
I wonder if ads for lawyers chasing after Toyota/Daihatsu victims will replace the endless barrage of Camp Lejune ads.
Yeah, I manage my mother’s email now and the number of Lejeune Lawyers emails she gets is annoying as hell. My father never served there so it wouldn’t matter.
There’s absolutely going to be a bunch of lawsuits, but I think the Scion iQ is the only recent North American market model potentially affected, along with whatever Charades and Rockies are still on the road here (since the HiJet was only ever imported for off-road use). Thanks to our collective hatred of small, efficient cars, I dont think there’s enough of a potential market for a big class action in the US.
one can only hope
Whatever they do, I just hope they buck the trend of adding “gate” to the end of whatever it is to name a scandal. It’s so played out and never made sense in the first place.
Was just typing this when I saw yours:
The Daihatsu can be called anything – EXCEPT Daihatsu-Gate. I absolutely abhor the use of the word gate to explain a scandal.
Based on a quick read there seems to be some issue with unlocking, so there we have it:
Unlocking-gate
I’ll take gate over the really overused hack. I have a hack to cure hunger. Eat something.
“It’s so played out and never made sense in the first place”
The first place was the Watergate complex so it made perfect sense.
https://en.m.wikipedia.org/wiki/Watergate_complex
OMG – how many people out there think it had something to do with “water?” Know what? I don’t want to know.
Depends on who you ask:
“In his 2009 book Presidential Power on Trial: From Watergate to All the President’s Men, William Noble wrote that the Watergate “got its name from overlooking the ‘gate’ that regulated the flow of water from the Potomac River into the Tidal Basin at flood tide.”[25] That gate (near the Jefferson Memorial) is about 1.5 miles (2.4 km) downriver from the Watergate complex”
Or
“In 2004, Washington Post writer John Kelly argued that the name was most directly linked to the “Water Steps” or “Water Gate”, a set of ceremonial stairs west of the Lincoln Memorial that led down to the Potomac”
The disastrous Daihatsu deflation deed done by delinquent director devising design due to duress.
It’s all gone wrong this Toyotathon.
The Town Ace you’re gonna need to replace.
Protecting you. What your Daihatsu, won’t do.
.
Kaizen-Gate
This is fun.
Diahatsucares, AMIRITE?
Note the first time for Japanese manufacturers though.. Last time it was Kobe Steel which affected GM, Ford for automotive https://canada.autonews.com/article/20171013/CANADA01/310139919/kobe-steel-may-have-faked-data-on-metal-engines-tires Elon might want to look out.
I also thought of the vehicle defect cover-up at Mitsubishi in the 2000s – although some of those defects went back decades.
One of the reasons that the Mitsubishi scandal went on so long was because Mitsubishi did cover-ups, then cover-ups of cover-ups, which led to court cases popping up in the news just when everyone had almost forgotten.
It looks like Toyota is going to employ the same MO as the “unintended acceleration” “scandal”, to wit, apologize, throw money at it and own it, so it flames out spectacularly, then dies.
I have realized through these recent articles that the Taco Bell Cheesy Gordita Crunch is still available. Oh. Dear.
It is still available, and still tasty. However it is practically $5, for what amounts to a $1.19 taco with some different sauce, extra cheese, and another shell.
The Taco Bell jingle used to be “$.69, $.89, $1.09” because every menu item was one of those prices. Now three tacos and a drink is $10.50! Of course their staff now costs them $16+/hr.
Those were the days, walk in with $20, walk out with 20 tacos, and change.
The 10 Taco pack for $5 @ off times.
They still offer a 100 soft tacos for $100 or 100 crunchy tacos for $179 deal though
They don’t offer that in my market. If they did I would have done that a few times by now. I’ve been know to show up places with 30 tacos at times.
With a handle like that I’m shocked you stopped at 30.
I am also a Cheap Bastard, but that name was taken.
All the good ones are.
Back in HS I remember crunchy tacos we’re 39 cents, used to find enough change in the car to get 3.
And gas was a buck a gallon. Good times.
Because otherwise they can’t afford three tacos and a drink at $10.50.
Pretty sure the price of Taco Bell tacos and drinks went up long before employee wages budged an inch too. Executive compensation OTOH…
Yeah, I’m the guy that when the McDonald’s app had coupons for a Crispy Chicken Sandwich for free with any purchase of $1 or more (so a diet soda, because sodas were $1.29), I kind of made an excuse to walk over there whenever I had any nearby errand, because a decent sandwich and drink for $1.35 was solid.
Now if I go in the app and see the price of the Deluxe Spicy McCrispy is $6.89 — or $7.32 with tax — I think of the food I could make for that and nope out.
“Now if I go in the app and see the price of the Deluxe Spicy McCrispy is $6.89 — or $7.32 with tax — I think of the food I could make for that and nope out.”
At least a Costco pizza still runs $9.99.
With this comment, now exactly 20% of the comments on this piece about a massively serious scandal and big economic hit for Japan’s motor industry are about fast food. The Tacopian!
Wow, you’re right.
There aren’t any comments about cheeseburgers… until now.
Daihatsu are from Osaka, so a special mention for takoyaki.
Any comments on the Reuters article on the rapidly failing Tesla suspension components and Tesla’s coverups?
https://www.reuters.com/investigates/special-report/tesla-musk-steering-suspension/
Yeah, I completely trust them with this gigacasting and DBW steering nonsense.
I remember reading about this a year or two ago, but had no idea those issues were so prevalent. What kills me is how they keep alleging “abuse” being the cause of all these failures. No other automaker has a rate of suspension failures as high as Tesla (nice data point in that article), but somehow it’s all the customer’s fault. I also remember checking out Copart a year or so ago and seeing a number of Model 3s that were clearly totaled because of front suspension failures. This explains it.
Wow, that is quite the indictment. And their brush off by saying it doesn’t matter because it only affects (in their estimation) 0.05% of the fleet – but do the math – if they sold 1 million cars (they have sold a lot more) that would be 500 potentially deadly accidents- not insignificant. The problem is the result of the failure has a high probability of death. It looks like they need to be x-raying the control arms for defects – a common problem with aluminum castings. The higher frequency axle issue is perplexing – that just should not be happening on modern axles made by quality suppliers – maybe they have cheaped out and gone with a low-cost, low quality supplier.
Should someone introduce Six Sigma to Elon?
Agreed. I’ve worked on automotive recalls with even lower numbers where the outcome of part failure is so severe.
Ghosn needs to connect with some Daihatsu execs to advise them how to escape the country ASAP to a non-extradition country…
This seems like a pretty serious scandal, but nothing as bad as Ghosn’s crime of not being Japanese.
I’m just hungry for Tacos now, was that analogy cause Tacoma or just cause Tacos are awesome?
I’m not sure this is at the level of Dieselgate, I’m not sure Dieselgate was at the level of Dieselgate, seems like it’s kind of between the Cobalt ignition lock issue(they changed the part without changing the part number and the old part was muy malo), and I guess the Firestone issue.
Are most of these Kei or restricted cars? Seems like if it’s mostly cars that already are limited safety-wise, hard to say how bad it is, names sound small, I probably wouldn’t even fit in a pixy-joy.
It appears that Daihatsu is blaming their status as the small car developer/contract manufacturer for the entire Greater Toyota Co-Prosperity Sphere for the situation, locking them in to supply agreements for external customers that Daihatsu’s manufacturing capacity and supply chain were unable to meet without serious strain – anyone who’s ever been handed a ridiculous list of unrealistic made-up numbers by their boss in December and been told those were your goals for the following year, end of discussion, knows how that works. Management at Daihatsu obviously realized the plans were over ambitious but clearly felt they couldn’t speak up and probably put on a good show of willingly buying in and going along.
Daihatsu has 8 plants in Japan and was building about 1.4 million vehicles a year before Toyota took full ownership, since then, it’s gone up to more like 1.8 million, which doesn’t seem massive, but if their supply chain wasn’t adjusted to the new volume, perhaps it was. Also, they’re supplying cars to Subaru, Mazda, and Toyota now, which, granted, are largely badge engineering jobs, but, still, if those other brands are the ones setting the quarterly production targets and dictating delivery dates, that could be part of what strained Daihatsu internally, along with similar pressure with the contract R&D they’re doing. It sounds like they were assigned a role in the group without any checking to see if they actually had all the resources in place to fully fulfill that role within the timeline dictated
This Co-Prosperity Sphere sucks. I am still waiting for the Gundams and O’Neill space colonies!!
https://i.pinimg.com/originals/c1/91/64/c1916434ea12213a38d2b39dcdb0fd6f.gif
Are you kidding me? The Co-Prosperity Sphere totally rules. Everyone had a blast… actually two. One in Hiroshima and one in Nagasaki.
They know what they did…
DaihatsuGēto
Daihatsumon
Daihatsunami!
Will Japan oust Toyada like the last Chairman/CEO for another Japanese OEM?
I doubt it. Instead the Daihatsu CEO is going to lose face.
I would call the scandal Rocky III. Oh wait, that’s already been used for a disaster.
On a scale from Police Academy 6 to Highlander 2, this is approximately an Electric Boogaloo.
*Highlander 2 is a theoretical maximum badness, and cannot actually be achieved in reality.
That’s because Highlander 2 does not exist, ask Highlander 3.
Rocky III is great. Fight me. 😛
I pity the fool…
I just want to know why you put a Probox on the header.
“The Toyota Daihatsu Scandal May Effect 64 Different Models And 3 Engine Lines”
You mean affect?
There’s the name: GrammarGate!
Will someone please think of all the commas?
No no, it will do that weird transitive verb form of effecting, which admittedly leaves me with a puzzled affect until I figure it out. We’re all effected by this.
Well, now that everyone is using nouns for verbs (“the best way to office”) I suppose it works either way.