Kobe Steel Scandal Expands Into Core Business Overseas

Kobe Steel Chairman

Kobe Steel Chairman

Two big Japanese railway companies said Thursday that substandard parts from Kobe Steel were used in the manufacturing of several bullet trains.

The bombshell admissions by Japan's third-largest steel maker sent its shares plummeting again, with the scale of the misconduct dealing a body blow to the nation's reputation as a high-quality manufacturing destination.

"Boeing has been working closely and continuously with our suppliers since being notified of the issue to ensure timely and appropriate action, including comprehensive inspections and analysis throughout our supply chain", the company said in an email.

Subaru has also confirmed that it bought affected products.

A government spokesman told CNNMoney that the Ministry of Economy, Trade and Industry has ordered Kobe Steel "to report the result of safety checks within around two weeks, and conduct a thorough investigation of the reason for data fabrication and prevention measures within a month".

Kobe Steel shares were down 8.5 percent at 0030 GMT after stabilising on Thursday to close slightly higher. They had fallen almost 40 percent in the previous two days, wiping about $1.6 billion off the company's market value.

The scandal came to light Sunday, when Kobe Steel said employees had falsified data about the strength and durability of thousands of tons of aluminum and copper parts sold between September 2016 and August 2017.

"It will likely continue to be extremely hard to make judgments on creditworthiness and investment until the safety of the products and the extent of damages are clarified", SMBC Nikko Securities said in a note to clients. Product quality scandals have posed a challenge to the image of top Japan's manufacturers in recent years.

But those credentials have been shattered, a point amplified by CEO Kawasaki who said the credibility of the firm "has plunged to zero".

The corrosive business practices have raised broader questions over corporate governance in Japan, and cast doubt on the integrity of a manufacturing industry once the envy of the world.

Planes, trains and automobiles - Kobe Steel's fake product data scandal has now touched every major form of transportation. Conglomerate Toshiba Corp (6502.T) is still battling the fallout of a scandal over reporting inflated profits.

Deputy Chief Cabinet Secretary Kotaro Nogami told reporters the government was seeking more information about the problem and trying to determine its possible impact on product safety.

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