Daihatsu Records Operating Loss for First Time in 31 Years... The Price of Certification Fraud

Daihatsu Industries recorded an operating loss for the first time in 31 years since the March 1993 period, following the collapse of the bubble economy. The company's consolidated financial results for the fiscal year ending March 2024 revealed an operating loss of 5 billion yen (compared to an operating profit of 38 billion yen in the previous fiscal year). The company was unable to prevent a decline in earnings due to the prolonged suspension of shipments and compensation payments to partner companies stemming from the certification irregularities.

According to the financial statement, net sales were 1.181 trillion yen (a 20.9% decrease from the previous fiscal year). Net sales decreased significantly as all vehicle models were halted from December 2023 due to the certification irregularities. The company booked a special loss of 70 billion yen due to accumulated compensation payments to partner companies. While Daihatsu successfully overcame the challenges of the 2008 Lehman Shock through rigorous cost-cutting measures, the consequences of this irregularity were substantial. However, the company recorded 64 billion yen in non-operating income due to factors such as tax refunds and adjustments, allowing it to maintain a net profit of 15 billion yen (an 80.5% decrease). Details regarding the non-operating income have not been disclosed.

Regarding the financial status, current assets decreased by 131 billion yen year-on-year to 507 billion yen, while current liabilities also decreased by 140 billion yen to 389 billion yen. Total liabilities decreased by 141 billion yen to 415 billion yen, and net assets increased by 16 billion yen to 403 billion yen. Although earnings have deteriorated, the company continues to maintain a sound financial position without relying on capital from Toyota Motor Corporation or loans from financial institutions. However, domestic orders following the resumption of shipments have remained at about 70% of the previous level. If order reductions persist due to delays in introducing new vehicles, there are concerns about not only earnings but also a potential decline in the financial position.

Daihatsu's irregularities have had a significant impact on the entire Toyota Motor Corporation group. Toyota Motor Corporation reported record-high net income of 4.9449 trillion yen (a 101.7% increase from the previous year) in its fiscal year ending March 2024. However, due to the certification irregularities at Daihatsu and Toyota Industries, Toyota Motor Corporation is currently reevaluating its production and development systems.

Toyota Motor Corporation plans to invest a total of 1.7 trillion yen to cover labor costs for partner companies and dealerships, and to accelerate development of electric vehicles.

Daihatsu has suffered a major blow from this irregularity incident, but is aiming for a comeback with the support of Toyota Motor Corporation. It remains to be seen whether Daihatsu can resolve the certification irregularities and achieve renewed growth in the wake of this incident.