Sunday, November 20, 2016

Mitsubishi: Fraudulent Fuel Economy Tests (April 2016)

Mitsubishi Motors logo
There has been a 25 year fuel economy scandal uncovered in this past April. Mitsubishi was caught lying on multiple occasions regarding how many miles to the gallon that their vehicles can maintain. In 1991 Japan placed new regulations, which further restricted how the country monitored the mpg of their country's vehicles. At the time of the proposals, they were only under investigation with two main models; the eK and the Dayz. Under new research, it is now confirmed that there are eight models under investigation, and they have since been raided by what would be the Japanese Transport Administration. Some of the major models that are being questioned are the Pajero, the RVR SUV, and the well known Outlander. Mitsubishi Motors is now being forced under federal law to cease all production of all eight models until proper numbers relating to fuel-economy can be released. The JTA quotes that "we want to thoroughly investigate the circumstances that led to this situation," and they found that all efficiency numbers were understated by 4.2%-8.8%. They also uncovered that Mitsubishi was only making estimates of their numbers based on old tests, and not physically running updated tests for recently produced vehicles.
The controversy arose when Nissan, a partner company, found out about the false numbers. Centering around the fact that Nissan works on multiple projects with the fraudulent company, and actually has them manufacture the Dayz model for them, they did not want to be linked to the charges. They cut off all ties with the company until they saw a business opportunity. As a result of the scandal, Mitsubishi Motors' market share tumbled along with their revenues. This meant that in order to stay in business, they needed an influx of investments. Nissan hopped on this chance, and purchased a controlling stake in the company for $2.2 Billion. This will hopefully create a large change for Mitsu, being under a new board. Nissan wasn't the only partner company effected by the false data though. Toyota also has ties to the company, and refuses to do business in the future. It will take years to come to bounce back from the scandal, and Mitsubishi's now resigned president stated he "was truly embarrassed."
Unfortunately with any scandal, more than just one entity is effected. Their vehicles were sold worldwide, and many people took hits. Mitsubishi had to lay off several employees due to their cuts in revenue streams, so upper and lower level employees were stakeholders. Any partner companies like Toyota and Nissan who conducted business would also be effected from the halt in production. Joined by consumers in any country that sells any of the eight models with fraudulent data. If you purchased one of those vehicles, there was a very good chance the appealing fuel economy was one of the reasons you turned to it. Members of the Japanese Transport Authority are also included because they have to take time to investigate a large company as soon as possible. Lastly, the Japanese government becomes a stakeholder, because they now have to again create new legislation to prevent future events from occurring.
Dayz model by Nissan
produced by Mitsubishi

Individualism focuses on the concept of making profits within the law. As Friedman explains, the only obligation that the business person has is to maximize profit for the owner or stockholders. The decision in 1991 to falsify data would, for the next twenty five years, make the company seem individualistic. The problem is that they directly went outside the law to make profits possible. Machan's individualistic approach follows the same concept, but explains that indirect goals must be met as well, those of which do not directly link to profits. Mitsubishi had indirect goals of meeting the standards of Nissan and Toyota, and doing so within Japan's Law. They were individualistic in the sense that the company put profits before all, but cannot be classified as this because of their unlawful decisions. If the company chose to place an irrational profit margin on their vehicles, this would still be unfair to their customers, but not illegal. A decision like this would fall in the lines of Individualism. Unfortunately, directly ignoring regulations was the choice former president Tetsuro Aikawa made for Mitsubishi. They felt that their numbers were not up to par to compete with the competitive market and they saw an opportunity to make more profits. Exactly what the stockholders want as investors, but the wrong means of doing so. Although they were happy, many stakeholders were affected as a result, and in the end Mitsubishi paid up for it by almost having to close their doors entirely. With a cost of $1.4 Billion in fines to counteract regulation violations, it will be tough to recover fiscally. Trust is needed for any company to succeed, and all trust is lost from consumers when lying about figures, especially fuel economy. Safety and efficiency are two areas where you must be honest, and Mitsubishi's desire for positive profits made them almost individualistic, but not quite.
eK model by Mitsubish

John Stuart Mill's idea of utilitarianism takes a stakeholder approach, and is focused on the consequences of the business action. This action's main goal should be to maximize happiness in the long-run for all conscious beings affected. He also touches on the idea that happiness is a valuable thing, and that there is no difference morally, between one beings happiness to another. There are two viewpoints to how Mitsubishi could be looked at from a utilitarian perspective. Many stakeholders, especially the consumers who bought vehicles like the eK and Dayz, were affected in a negative way but only after a twenty five year period. The line is drawn depending how you look at the term long-run. If you describe this within the confines of a twenty five year period, then you could almost consider their actions to be utilitarian. Happiness becomes the only thing matters, and for this extensive amount of time, every stakeholder in the picture was, in fact, happy. Even though the figures were falsified and outside the law, strong profits were being reported along with satisfied customers. The consumer believed they were purchasing a good reliable vehicle, and they essentially never had issues with their cars other than having to refill the gas tank slightly sooner. This changes if you determine that the "long-run" should be a hundred years, or even hundreds or years. This would make their unethical choices result in very unhappy consumers in a short period of time. Happiness is pleasure and freedom from pain and the consumers, along with many employees of the company, were not pleased when the news was reported. Once the Japanese Transport Administration raided the company, the idea of a utilitarian organization was kicked down along with the front door. The intrinsic value is completely centered on happiness, and because of this it makes is difficult to make a finite verdict on if the company acted in a utilitarian way. They did aim to keep everyone happy, and did for quite some time. If you asked around 1995, most people would agree that they were completely utilitarian, but fast forward to 2016, and there's an entirely different picture.
Tetsuro Aikawa, former President of Mitsubishi

Immanuel Kant centered Kantianism on rational decisions, and doing what is right. In his basic principles he states to not act inconsistently in your own actions or consider yourself exempt from the rules. He also mentions to be motivated by good will, which is seeking to do what is right, strictly because it is the right thing to do. Mitsubishi acted irrational in every aspect of the term when deciding to ignore new regulations back in 1991. They did not approve of the rules set in place, and considered themselves exempt from having to follow them. As a maxim they manipulated economy data in order to achieve a competitive market. They also lied to the government, in order to avoid being prosecuted. These actions were not rational, nor rightly motivated. Kant describes a rational decision as one that is morally permissible or morally required. Mitsubishi was morally required to change their practices with the new laws, and disrespected their government and customers alike when acting to disobey. The autonomy of many individuals was ignored by not giving the consumer a chance to make a rational decision themselves. The formula of humanity states to "act in such a way that you treat humanity, whether in your own person or in the person of another, always at the same time as an end and never simply as a means." In this situation an end in something valuable in itself, and doesn't need to be used in order to achieve some other benefit. The manipulated data was valuable to the company to achieve positive profits, but is not valuable as an end. They used it to achieve another goal, and one that did not respect humanity as a whole. A group of falsified data is not valuable unless used for a negative purpose, and this is where some of the basic principles of Kantianism are ignored. If Mitsubishi was acting with good will, they would have adapted to the laws back in 1991, and made a strive to make a quality product within the boundaries placed before them. A positive maxim for them to follow would be: We will produce accurate figures, because it is the right thing to do as a automobile manufacturer. Its simple to follow, and would have left them in a much better place than their sitting in now.

Virtue Theory
Virtue Theory touches on the ideas of rationality, and fulfilling a functional life. According to Aristotle to feel fulfilled, one must look at a person individually, and find the distinguishing characteristic which surrounds their function. He believes in order to be happy, one must fulfill their function, but also act rational in the process. If you look at former president Tetsuro, his function was to lead a multi-billion dollar company forward in a successful manner. He was on the border of virtuous, but did not make his choices around the doctrine of the mean. Aristotle sees the four main virtues as courage, honesty, temperance, and justice. These all fall between two extremes, and therefor make them "just right" for how to act in a given situation. Courage, for example falls between being cowardice, and being too rash. President Tetsuro was courageous in a sense, but acted for the wrong ideas. It takes courage to make any large decision in a company, but by going against Japanese laws that were set in place to better everyone, he stood for an outcome that was far from virtuous. His decisions also manipulated the customers of Mitsubishi, and because of this cannot be considered honest. The situation called for lies to be spread throughout the entire company. His general employees could not know, the consumer had to be hidden, and the government had to be given false data to pass economy tests. If every car company acted as Mitsubishi did, we would never know if anything was true about the car we're about to purchase. These choices were very dishonest to a number of stakeholders. Solomon describes temperance as "reasonable expectations and desires," and Aikawa's decisions fell just outside of this boundary. It would be reasonable of any president of a large company to desire positive profits that reflect growth and efficiency. His desire was to look good in the eyes of his stockholders, but did so with many vices. His expectations were not out of line, but how he came to achieve these lacks self-control as a president. A virtuous leader would have put the time into improving their product within the law, and never manipulated consumers in the process. The virtue of Justice results in fair practices, quality products, good ideas, and overall hard work. Very little of this was displayed by the actions of the company, they strayed far from fair practices, and hard work. Taking estimates was an easy way out compared to running physical tests, and it was a horrible idea to directly disobey new regulations. Based on Aristotle's concepts, Tetsuro and Mitsubishi did not show virtuous actions while conducting their business.

Justification Ethics Evaluation
Mitsubishi headquarters in  Minato, Tokyo, Japam
As much as I'm sure the upper level management wants their choices to be justified, I can't see any reason why they would be. The decisions were made strictly for profits, and to falsely compete in a market they weren't gaining ground in. Instead of putting some heads together and thinking of new marketing techniques, or actually creating a better product, they manipulated data. There's never justification for taking an easy route, and it harmed far more people than it benefited in the long-run. The world would be a better place without companies like Mitsubishi Motors, and there's enough car manufacturers to replace them in a heartbeat. I hope Nissan can change the image associated with them, and send them heading in the right direction.

Action Plan
Fortunately for Mitsubishi, with some effort towards re-branding themselves, and the recent buy-out from more reputable manufacturer Nissan, there's light at the end of the tunnel. The first thing I would recommend they do is come forward about every aspect of their unethical actions within the company. They need to get everything out on the table now if they expect to improve. It would be useless to try to recover, and then have more scandals arise deeper in the books. The next step they need to take is to release all the accurate data for the eight vehicles that are involved in the discussion. With proper numbers released to the public they will be able to move from there. I would also reimburse all customers that feel that they were lied to, and no longer want to drive their vehicles. It will most likely take a large financial tole, but is completely necessary to build trust within the automotive market. Next I would attempt to build back the relationships that were present with other large car manufacturers. It's never helpful to have enemies in the same market your fighting for, and will only help to regain friendships with huge producers like Toyota. Although not all of them will be interested, and may need proof of faithful business practices before they want to take part, it's definitely an important step. Finally, I would re-brand and focus on integrity. People are going to need time to adjust to the scandal and decide for themselves if Mitsubishi is a company they want to buy from or not. a re-branding could never hurt.
Some of the core values I would focus on if I were the new president of MM, would be consistency, of course integrity, and customer satisfaction. Consistency is going to be key going into the future in every aspect of the business. They are going to need to show the millions of consumers watching that they can produce a logical car to buy time and time again. Whether or not they will be able to keep selling the eight affected models will be up to the market. If they can build back trust, they have a chance at gaining market share again, at least in Japan. Integrity will be needed to keep the company productive, because they are on a short string with buyers and the government. One more slip up like the 25 year scandal present, and no one will touch them with a ten foot pole. If they want to be successful they will have to maintain ethical business practices all around. Last, customer satisfaction is going to be a high priority from here on out. As much as you can't let the consumer make every decision for themselves, Mitsubishi will need to hone in on what the buyer wants in the future, and how to bring it to them in a productive way. If these core values are followed, along with the steps outlined to regain trust, then they have a shot at regaining a customer balance.

Shiraki, M. (2016, September 2). Mitsubishi Motors raided after fuel-economy scandal widens. Retrieved November 19, 2016, from Automotive News:
Tajitsu, N. (2016, August 30). Mitsubishi suffers sales ban after overstating fuel economy for 8 more models. Retrieved November 19, 2016, from Automotive News Europe:
Mullen, Jethro. CNN. 22 June 2016. 17 September 2016.
Newman, W Rocky. Fortune. 3 May 2016. 2016 September 2016.
Soble, Jonathan. The New York Times. 20 April 2016. Article. 24 September 2016
Business Ethics PowerPoints- Utilitarianism, Kantianism, Virtues, and Individualism
Salazar, The Case Manual, Chapter 5: Abstract and Action Plans

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