Mitsubishi Motors report blames poor governance for mileage scandal

[August 02, 2016]  TOKYO (Reuters) - Poor governance at Mitsubishi Motors Corp <7211.T> that pressured resource-starved vehicle engineers to improve fuel efficiency was a root cause of the Japanese automaker's mileage cheating scandal, an investigation has found.

Mitsubishi Motors hired three former public prosecutors and an ex-director of Toyota Motor Corp to conduct a three-month probe into its practices after admitting to overstating the fuel economy on two of its minivehicle models, along with two models manufactured for Nissan Motor Co Ltd.

The company also used improper data to calculate mileage for other models, going back to 1991.

The investigators, in a report released on Tuesday, criticized Mitsubishi for "not having the manufacturing philosophy of an automaker" and being more focused on cutting costs from 2004, which squeezed the resources engine designers needed to keep the company competitive in producing fuel efficient cars.

It meant the company's testing engineers had an impossible task of tweaking existing engine designs to gain greater fuel efficiency, they said.

"That the company did not take a united, cooperative approach to developing cars was a key factor behind the falsifications," said Yoshiro Sakata, one of the former prosecutors on the investigation team, said.

The revelation, the third scandal to rock the company in two decades, caused a slump in Mitsubishi's market value and forced it to suspend sales in Japan for almost three months. The company sought financial assistance from Nissan, which agreed to buy a controlling one-third stake in the company for $2.2 billion.

In 2000, Japan's sixth-largest automaker by vehicle sales revealed it had covered up customer complaints for more than two decades, and in 2004 admitted to conducting secret recalls.

Mitsubishi Motors Corp's Chairman and CEO Osamu Masuko (L) and Head of Research and Development Mitsuhiko Yamashita bow their heads to apologize over the company's mileage scandal at a news conference in Tokyo, Japan, August 2, 2016. REUTERS/Kim Kyung-Hoon

The company last week reported a 75 percent plunge in first-quarter operating profit due to a slump in domestic sales as a result of the sales stoppage. The company expects compensation costs to customers, Nissan and suppliers, along with falling sales will result in an annual net loss of $1.4 billion this year.

The report on Tuesday recommended five improvements at the company: a revamp in development, stricter compliance, greater transparency, a better understanding of the law, and a greater willingness to uncover and tackle violations.

So far the scandal has claimed two high-profile executives, with President Tetsuro Aikawa and its top technology executive Ryogo Nakao stepping down.

(Reporting by Naomi Tajitsu, Tim Kelly and Norihikou Shirouzu; Editing by Christopher Cushing and Muralikumar Anantharaman)

[© 2016 Thomson Reuters. All rights reserved.]

Copyright 2016 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.