Bigmotor, one of Japan’s largest used car dealers, is facing a major scandal as its chief, Hiroyuki Kaneshige, announced his intention to resign amid public criticism over the company’s involvement in repair fraud. The scandal was brought to light earlier this month when an investigation report revealed that some Bigmotor employees deliberately damaged customers’ vehicles to charge excessive repair fees and make fraudulent insurance claims. Kaneshige expressed his belief that a change in leadership is necessary to rebuild trust and renew the corporate culture. He will officially step down on Wednesday.
The investigation report disclosed by the used car dealer exposed at least 1,275 cases of improper repairs carried out by employees at the body and paint shops. These unscrupulous practices included using screwdrivers and sandpaper to scratch car bodies, hitting vehicles with golf balls placed in socks, and performing unnecessary paint work. The repair shop leaders faced intense pressure from senior officials overseeing the body and paint business to achieve revenue targets of approximately ¥140,000 ($990) in gross profit per repair.
One of the crucial questions arising from the scandal is whether the misconduct was organized and involved top executives. During the news conference, Kaneshige denied the direct involvement of company leaders, asserting that the management team only learned about the malpractice in late June when they received the investigation report.
However, Kaneshige admitted that his management approach indirectly contributed to the misconduct. He acknowledged the lack of healthy corporate governance and proper internal control and compliance systems within the company. Despite his denial of direct involvement, he recognized his responsibility as the leader for not establishing effective measures to prevent such unethical behavior.
Kaneshige founded the business that later evolved into Bigmotor in 1976, and under his leadership, it became a prominent used car dealer in Japan. However, the company’s aggressive growth targets in recent years may have inadvertently influenced employees to engage in fraudulent practices to meet expectations.
The investigation report showed that 68.3% of the surveyed employees attributed the misconduct to Bigmotor’s prioritization of increased revenue. Many of them also cited the difficulty in going against their superiors’ instructions as a contributing factor. Out of 382 repair workers surveyed about their involvement in the misconduct, 104 admitted their participation.
The scandal came to light when three insurance companies—Sompo Japan Insurance, Mitsui Sumitomo Insurance, and Tokio Marine & Nichido Fire Insurance—received information suggesting that Bigmotor was making fraudulent insurance claims. The 1,275 improper repair cases discovered account for nearly 15% of the 8,427 insurance claims since November 2022. The average excessive amount charged per case was approximately ¥39,000.
Initially, Bigmotor conducted an internal investigation, but the insurance companies remained unconvinced, prompting the establishment of a special committee consisting of lawyers in January to conduct a more comprehensive investigation.
The investigation report identified several root causes of the scandal, including setting unreasonable business goals, failing to listen to front-line employees, lacking corporate governance, and having insufficient awareness of compliance measures.
Shinji Izumi, an executive who will take over as the new leader starting Wednesday, has pledged to transform the corporate culture and strengthen corporate governance and compliance within Bigmotor. Since the company is unlisted, Izumi acknowledged the limited opportunities to receive diverse opinions and perspectives, leading to a lack of objective assessment and low compliance, which eventually contributed to the misconduct.
The transport ministry is scheduled to hold a hearing with Bigmotor on Wednesday, after which an on-site inspection may be conducted to further investigate the matter.