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Exclusive: Mitsubishi Motors to hire auditor to oversee errant tech unit - sources

[June 10, 2016] By Norihiko Shirouzu

TOKYO (Reuters) - Japanese automaker Mitsubishi Motors <7211.T> plans to bring in an outside auditor to monitor its technology division, blamed for at least three high-profile cheating scandals, two people familiar with the thinking of the company's leadership said.

The move, not yet formalized, would see a third-party auditor oversee major research and development and engineering processes and decisions at the company, they said.

This would partly be a response to the company's recent admission that it cheated on fuel economy tests for some models, and would be a way to "modernize" the division at a time of increasing competitive pressures in the auto industry.

"We lag behind in modernizing our tech unit," said one of the two company insiders. "We've not been able to put in place a system that could prevent cheating and irregularities."

The people declined to say who may be hired as auditor, or when this might happen.

Pressure on automakers to meet tougher fuel economy and emissions requirements, and the industry's rush to develop electric cars and autonomous driving can tempt engineers to cut corners. Volkswagen <VOWG_p.DE> admitted last year to cheating on U.S. diesel emissions tests, and Ford Motor <F.N> and Hyundai Motor <005380.KS> have previously been damaged by overstated mileage claims. Suzuki Motor <7269.T> said this week its CEO would step down and executive pay and bonuses would be cut after it cheated on some fuel economy tests.

"We need to audit aggressively and thoroughly all the engineering decisions we make and processes we take," the Mitsubishi Motor insider said. "We need to ask our engineers: did you test the technology appropriately? Did you input the data correctly and appropriately?"

INSULAR, RESISTANT

Mitsubishi Motors has already made some changes at its technology arm in Okazaki some 250 km (155 miles) from the company's Tokyo head office.

After admitting in April it used falsified fuel economy data for four models it sells in Japan, the company asked Nissan Motor <7201.T> for people and expertise to help reform its technology division. That led ultimately to Nissan agreeing to buy a controlling stake in Mitsubishi Motor.

Nissan executive Mitsuhiko Yamashita has since been named as head of Mitsubishi Motor's technology unit - part of a board and management reshuffle expected to take effect after this month's annual shareholders' meeting.

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A man walks in front of an entrance of Mitsubishi Motors Corp's headquarters in Tokyo, Japan, May 13, 2016. REUTERS/Issei Kato

Mitsubishi Motor's CEO Osamu Masuko, who was brought in from sister trading firm Mitsubishi Corp <8058.T> over a decade ago to help the automaker recover from a previous scandal, has been restructuring to focus on efficiency and profitability.

But the two insiders say he has struggled to control the tech arm, which tends to operate behind "walls" and often in a state of "secrecy and arrogance".

Engineers in some departments are rarely rotated through the company and work "almost as if they were craftsmen in a remote village with little contact with the outside world," one of the insiders said.

Even before the latest scandal, Masuko and senior executives had questioned the technology division's ability to meet stricter regulations on fuel economy and emissions, but had been told by the engineers not to worry, the people said.

They said the CEO was considering overhauling the unit before the scandal broke and had previously hired consultants including Roland Berger and Deloitte who fed back that the technology division was insular and resistant to outside suggestions on work processes or technology development.

Automakers today need to be open-minded to deal with the fast pace of technological change, the Mitsubishi Motors insider said.

"Because of those changes, we cannot develop cars alone. We need to be open to new ideas from outside, but our engineers are resistant to change," he said.

(Reporting by Norihiko Shirouzu; Editing by Ian Geoghegan)

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