Cost-Cutting Japanese Factories Struggle to Maintain Safety

A series of safety scandals at Japanese companies have put the country’s lionized factory floor under scrutiny as manufacturers struggle with increased pressure on costs, stricter enforcement of standards and growing competition.

With margins squeezed by a stagnant domestic market and rivalry from China and South Korea, many factories have cut costs, reducing their reliance on workers in lifetime employment in favour of labourers on temporary contracts.

As they have done so, safety scandals have erupted across the country’s much-vaunted manufacturing sector, with Subaru Corp. on Friday joining Nissan Motor Co. Ltd. in admitting it failed to follow proper vehicle inspection procedures.

Earlier this month, Japan’s third-largest steelmaker, Kobe Steel Ltd, said its workers had tampered with product specifications for years, leaving companies around the world scrambling to verify the safety of cars, planes, trains and electrical goods.

Unable to easily lay off “regular” employees, full-time employees with permanent contracts and pay scales based on seniority that formed the heart of Japan’s post-war workforce, companies have increasingly come to rely on “non-regular” workers – temps, part-timers and short-term contract workers.

These non-regular workers allow companies to cut costs and adjust their workforce, said Koji Morioka, emeritus professor at Kansai University and an expert on workplace issues. But it has led to a de-skilling of the factory floor, lowering standards and increasing the likelihood of wrongdoing and accidents, he said.

“The use of these ‘disposable’ workers is greatly increasing,” Morioka said. “The loss of experienced, skilled workers on the factory floor is becoming more and more risky.”

The share of non-regular workers in the labour force has risen from 20 percent in the early 1990s to a record 37.5 percent last year – with the proportion in some companies higher still.

The pay gap is stark, with regular workers last year on average paid 321,700 yen ($2,830) monthly compared with 211,800 yen for contract workers.

Companies are failing to produce the skilled workers needed to ensure standards are met in areas like safety at a time when scrutiny is intensifying around the world and lapses are met with greater criticism, said Parissa Haghirian, professor of Japanese management at Sophia University in Tokyo.

“There is a real human resource problem,” she said, with the traditional model of hiring workers straight out of school or university, teaching them on the job and rotating them between departments no longer functioning well.

AFTERTHOUGHT

With the ratio of companies complaining of labour shortages at a 25-year high and with firms needing specialists but failing to produce them internally, competition for skilled workers is likely to become more fierce, Haghirian said.

“I predict high performers will leave more quickly… leaving companies in trouble because these people traditionally would stay and drag everyone else along,” she said.

Japanese companies are not alone in being caught up in scandals, with European and U.S. companies caught cutting corners and manipulating results in areas like vehicle emissions tests to the sale of meat. But the Japanese firms face questions over whether they can adapt quickly enough.

Some Japanese makers have taken the attitude that “because the factory floor is well run, quality control and inspection can be applied as an afterthought,” said Tadashi Kunihiro, a lawyer who is a director and auditor on company boards.

Companies, he said, were not placing their most skilled workers in quality control roles.

While safety lapses have been going on at some companies for years or even decades, the decline of the lifetime employment system has likely sapped the loyalty of workers who are more likely to raise concerns themselves, Kunihiro added.

Improving transparency at companies has been a key plank of Prime Minister Shinzo Abe’s corporate governance reforms through measures such as boosting the number of outside directors.

But experts question whether such reforms can do much to prevent safety scandals occurring in the first place.

“Even if there are more outside directors, if there is cheating on the factory floor there is no way they will be able find out,” a senior executive in the aluminium industry said, speaking on the condition of anonymity.

“Even executives don’t know what’s happening on the factory floor,” he said.

Executives are guilty of becoming too detached from the operational side of the business, said Toshiyuki Shimegi, president of Porsche Japan.

“There is a need for more micromanagement,” he said on the sidelines of the Tokyo Motor Show. “They are missing the hands-on approach.”

(Reporting by Sam Nussey, additional reporting by Aaron Sheldrick, Ritsuko Shimizu; Editing by Raju Gopalakrishnan)

UPDATE 1-U.S. launches pilot program to alert owners of uncompleted auto recalls

(Adds details of Takata recall, background on program, Transportation Department statement)

By David Shepardson

WASHINGTON, Oct 27 (Reuters) – The U.S. National Highway Traffic Safety Administration said Friday it is funding a pilot program that will notify drivers in the state of Maryland if there are open, uncompleted recalls at the time that they register their vehicles.

The government says only about 70 percent of auto safety recalls have led to repairs or resolution of the problematic issues.

Automakers, who have recalled record numbers of vehicles in recent years, have struggled to convince millions of owners of vehicles with potentially faulty Takata air bags to get the necessary repair work done.

The number of U.S. vehicle recall campaigns hit a record high in 2016 for a third consecutive year, with 927 separate recalls affecting 53.2 million vehicles.

That total was bloated by recalls of Takata air bag inflators, which can rupture and send deadly metal fragments flying, and are already linked to 18 deaths and more than 180 injuries worldwide. Those recalls will eventually cover about 125 million inflators, representing the largest single auto safety recall ever for a single issue.

As of June, more than 65 percent of 46.2 million previously recalled Takata inflators in the United States had not been repaired.

Congress gave NHTSA the authority to provide grant funding for up to six states that agreed to pilot programs to notify consumers of open recalls on their vehicles at the time of registration, but Maryland was the only state to apply.

“This first-in-the-nation grant will serve as an example to the rest of the country as we continue to work across government to reach consumers in new and creative ways with potentially life-saving information about their vehicles,” Transportation Secretary Elaine Chao said in a statement.

Recalls jumped in 2014 after Congress held a series of hearings about major autosafety issues involving General Motors Co ignition switches and Takata air bags. In 2014, a record 63.95 million vehicles were recalled in the United States — more than twice the previous record set in 2004.

Some automakers, including Honda Motor Co, whose vehicles account for 17 of the 18 reported Takata-related deaths to date, are taking additional steps to locate vehicles with the potentially dangerous inflators.

(Editing by Bernadette Baum)

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