Toyota Motor (NYSE:TM) shares experienced a 4.0% decline as the Japanese transport ministry conducted inspections at its subsidiary Daihatsu Motor due to safety concerns dating back decades. Daihatsu had announced it would halt shipments of all its vehicles indefinitely after discovering safety-inspection irregularities, which affected 64 models, including nearly two dozen sold under Toyota’s brand. An independent committee had been investigating Daihatsu after it revealed rigged side-collision safety tests for 88,000 small cars in April. Toyota also separately announced a global recall of 1.1 million vehicles to address a faulty sensor that could cause airbags not to deploy as designed.
While analysts suggested that the impact on Toyota’s earnings would likely be limited due to the parent company’s size, concerns remained about the potential effect on Daihatsu’s suppliers. Daihatsu’s supply chain in Japan involves 8,316 companies with annual sales of 2.21 trillion yen from Daihatsu. The transport ministry stated that it would consider administrative penalties, including revoking Daihatsu’s production certification, based on the outcome of its investigation. Toyota affiliate and parts supplier Aisin, which manufactured the faulty sensors and is a major supplier for Daihatsu, also saw a 3.9% decline in its shares.
The incident drew criticism from the government, with Chief Cabinet Secretary Yoshimasa Hayashi describing it as “an extremely regrettable case that undermines the trust of automobile users and is misconduct that affects the very foundation of the automobile certification system.” Daihatsu stated it would consider financial support and damages for its suppliers. Meanwhile, shares of Suzuki Motor, Daihatsu’s main rival in Japan’s mini-vehicle market, rose 2.1%.
Featured Image: Unsplash @ joshua yu
