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Oct 19, 2017

Japan carmakers say Kobe Steel parts still safe; company future uncertain

FILE PHOTO: A man walks past the signboard of Kobe Steel at the group's Tokyo headquarters in Tokyo

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TOKYO — Three Japanese automakers on Thursday said they found no safety issues with aluminum parts made by Kobe Steel Ltd (KBSTY.PK), allaying some concerns that falsified quality data on products from the steelmaker had compromised their vehicles.

Kobe Steel shares surged after the car makers' statements, but the steelmaker still has to contend with a U.S. Justice Department probe, while checks continue at hundreds of companies involved in complex supply chains spanning the globe.

Japan's third-biggest steelmaker admitted earlier this month it falsified specifications on the strength and durability of aluminum, copper and steel products, along with materials for optical disks. The falsifications stretch back for more than 10 years, a senior executive told Reuters this week.

Since then, global automakers, aircraft companies and other manufacturers have scrambled to identify potential hazards in their products.

Toyota Motor Corp (TM.N), Honda Motor Co (HMC.N) and Mazda Motor Co (MZDAY.PK) said that hoods and other exterior parts used in their cars which were made from aluminum directly supplied by Kobe Steel were safe.

Kobe Steel shares ended the day nearly 7 per cent higher but are still down by more than a third since it announced the data falsification.

"We confirmed that the materials satisfy applicable statutory standards, and our own internal standard, for key safety and durability requirements for vehicles," Toyota said in a statement.

Toyota, one of the world's largest automakers, identified aluminum plates supplied by Kobe Steel for the hoods and rear hatches of Toyota and Lexus brand vehicles. Though outside the automaker's specifications, they were still safe to use.

While other carmakers including Nissan Motor Co (NSANY.PK) said they were still investigating the issue, the announcements by Toyota, Honda and Mazda suggest that Kobe Steel's cheating scandal may have a limited impact on product safety.

Nonetheless, the company's fate hangs in the balance while checks are being carried out. It must report to Japan's industry ministry by around the end of next week on any safety concerns and provide a more extensive account of the problems a fortnight later.

Industry leaders have reached a consensus that Kobe Steel is in a "serious situation," a senior Japanese manufacturing executive told Reuters on Thursday.

"For a manufacturer, quality control is the most important thing and they were cheating for many years. This was a shock to their customers, who can no longer trust Kobe Steel," he said.

This was the view of Japanese industry leaders, even though no safety issues have so far been identified, the executive said.

Kobe Steel customers will seek compensation for the cost of replacements and checks but "I do not think they are leaning toward lawsuits," he said, adding as far as he had heard there will be no recalls.

Overseas customers, especially those in the U.S. present more of a threat though, in light of the Justice Department investigation.

"I would think there will demands for quite a bit of compensation (from U.S. companies)," he said.

In Europe, aviation safety authorities earlier this week issued a directive advising aircraft manufacturers to avoid using Kobe Steel products if they can until checks are completed.

Japan's Ministry of Land, Infrastructure, Transport and Tourism is planning to probe the safety of automobiles, trains and planes using Kobe Steel products, a ministry spokesman said on Thursday. The meeting will share information but its final scope and start date have not been finalized.