Toyota’s safety scandal will dent its hybrid renaissance

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What is worse for a carmaker’s reputation: rigging emissions tests or collision safety tests?

A Japanese government investigation has found that Toyota Motors falsified data and skirted impact-safety tests for seven past and current vehicles, adding to the scandal engulfing the automaker. A decade after rival Volkswagen’s emissions scandal, where it admitted fitting cars with devices to help beat official tests, its reputation has yet to fully recover.

Safety, you would think, is of more immediate interest to the drivers of cars on the road than emissions data. And for Toyota, this widening controversy puts at risk a key opportunity to capture market share around the world.

Japan’s transport ministry said on Monday that Toyota submitted faulty data during pedestrian-safety tests for three current models, and used modified test vehicles for collision-safety tests for some past models. Toyota admitted it had provided inadequate data in occupant and pedestrian protection tests for some models including one sold under the Lexus luxury brand. It has temporarily halted shipments and sales of three cars made in Japan.

This is a reputational nightmare. The latest findings come soon after other similar scandals. In January, Toyota Industries Corp suspended all engine shipments after an investigation revealed it had falsified power-output figures. Last year, its wholly owned subsidiary Daihatsu was found to have distorted collision safety test results, dating back as far as 1989. In 2022 another subsidiary, Hino Motors, said it had systematically falsified emissions data, dating back as far as 2003. 

This latest scandal has hit after Toyota posted a record profit for the year to March driven by an unexpected surge in its hybrid car sales. It reaped the rewards of its reputation as a hybrid pioneer: nearly 40 per cent of its sales in April were petrol-electric hybrids. Awkwardly, the company uses its safety features — including its pre-collision detection and driver-assist systems which it markets as features designed to protect drivers and passengers — as key selling points for its cars.

Toyota shares are down 14 per cent from a March peak. Yet even after the decline, its shares trade at more than 10 times forward earnings, at nearly triple the valuation of German rival VW.

Its troubles don’t appear to be over yet. Officials will be carrying out an onsite investigation of Toyota’s headquarters this week. There is a limit to how often a company can pledge to tighten oversight before it loses credibility with investors and customers alike.

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