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Japanese auto scandal singes Suzuki

Close on the heels of Mitsubishi admitting that it had overstated the fuel economy of its mini cars and improperly testing other models, its compatriot Suzuki has also admitted to using wrong methods to test the fuel economy of its cars in Japan.

This news has led to widening of the testing scandal that has already rocked the automotive industry globally.

Suzuki Motor Company (SMC) CEO Osamu Suzuki told reporters, "The company apologises for the fact that we did not follow rules set by the country," adding 2.1 million vehicles were affected.

SMC said that it would continue selling its mini cars. The correct readings, it said, are not significantly different to those it submitted.  Japanese authorities may yet take a dim view of Suzuki’s infractions, fines could follow and the bad publicity could also dent domestic sales.

While globally the shares of Suzuki dropped more than 15%, India could be the much needed cushion for the company in the scenario.  So much of Suzuki’s value hinges on its Indian subsidiary so that the risks to shareholders appear limited.

Industry sources state that the group holds 56 percent in Indian-listed Maruti Suzuki, which is now worth about $10 billion while Suzuki’s overall market value is merely $11.8 billion after the latest drop. So, very little value is being ascribed to the rest of Suzuki, even if a big “conglomerate discount” is slapped on the Maruti Suzuki stake. That makes it hard to see Suzuki stock falling much further.

In further news about the scandal, Japanese authorities have asked for further details from SMC before May 31 calling its use of non-compliant tests "outrageous". Japan's transport ministry has ordered widespread checks to industry methods after Mitsubishi Motors admitted last month that it manipulated fuel economy data for, at least, four mini vehicle models overstating their efficiency.

Mitsubishi Motors president Tetsuro Aikawa said he would step down over that scandal, becoming the first senior departure since it broke battering the company's reputation and wiping billions off its market value.