In a dramatic turn of events, Toyota’s shares took a significant hit on Thursday, reflecting the growing concerns over a safety testing scandal at Daihatsu, a Toyota subsidiary, coupled with a substantial recall of about a million vehicles in the United States.
The impact was immediately felt on the stock market, with Toyota’s shares dropping by 4% on Japan’s Nikkei 225 index. The downturn continued on the New York Stock Exchange, where the shares dipped by 0.067% as of 9 a.m. EST Thursday, following a 1.07% fall in pre-market trading.
This financial tremor was triggered by a scandal at Daihatsu’s Osaka headquarters. The subsidiary, known for supplying cars and parts not only to Toyota but also to other automotive giants like Mazda and Subaru, was raided by government officials. The raid was a response to revelations that Daihatsu had been manipulating collision-safety test results since 1989, with the malpractices intensifying around 2014.
In a swift reaction, Toyota announced on Wednesday the suspension of all shipments of models developed by Daihatsu. This halt affects both domestic and international markets. This decision followed an independent investigation in April, which exposed Daihatsu’s rigging of side-collision safety tests for about 88,000 small cars, most of which were sold under the Toyota brand.
Toyota’s statement laid bare the extent of the irregularities: “New irregularities in 174 items across 25 test categories were found. This includes issues beyond the previously identified door lining and side collision test irregularities.” The scandal touches a total of 64 models and three engines, including 22 models and one engine sold by Toyota.
In addition to this debacle, Toyota also disclosed a recall of nearly 1 million Toyota and Lexus models from 2020 to 2022 in the United States. The recall, stemming from defects in the front passenger-side airbag system, encompasses popular models like the Camry sedan, RAV4 sport utility vehicle, and the Lexus-branded ES. The fault lies in a sensor designed to detect a passenger in the front seat, which, if short-circuited, could prevent the airbag from deploying.
In a statement, Toyota expressed, “We would like to express our sincere apologies for the inconvenience and concern this has caused to all stakeholders, including customers.”
This double whammy of the Daihatsu scandal and the massive recall presents a significant challenge for Toyota, as it navigates through the repercussions on its reputation, customer trust, and financial stability.