Bigmotor = Godzilla Size Fraud!

In this fraud series, I’ve tried to avoid companies that are complete frauds from the beginning. If someone just creates a pump-and-dump stock scheme, it doesn’t make this list because there are no lessons to learn there, other than don’t do fraud. FTX and Celcius both seem to have started as more or less legitimate enterprises that devolved into significant frauds through hubris or laziness. My take for now is that those organizations were so poorly run that they became fraudulent, but they didn’t start that way nor did they intentionally turn fraudulent.

The Bigmotor case is similar, but so much worse. Bigmotor was absolutely a legitimate organization, except that it seems to have intentionally devolved into fraud. Like many things in Japan, it is completely over the top.

Bigmotor was the largest used car dealership and repair company in Japan. Kaneshige Hiroyuki started the firm in 1976 and grew to 300 dealerships with a valuation of nearly $1 billion. For comparison purposes Japan has roughly the same area as California, but roughly 2.5 times the population.

Thirty-five years after starting the company he hired his son Kouichi. Sales took off and Kouichi was promoted to Vice President of the firm. Sustained insane growth eventually led to questions and in 2023 a number of significant fraudulent items came to light.

First, Bigmotor was caught on video showing employees how to falsify repairs. For example, a training video showed how to pop a tire and say all four needed to be replaced. That initial leak led to more allegations including charging for oil changes not performed, extending scratches to increase repair costs, inflicting intentional damage, and more. But that’s just ripping off customers.

Kouichi used to work for Sompo, one of the three big car insurance companies in Japan. When he came to Bigmotor he brought more than 30 of his Sompo colleagues. They helped train the staff on how to take photos to increase insurance payouts by making the damage look worse. They also showed how to use chalk to simulate damage that didn’t actually exist. Sompo eventually found out and decided it didn’t care. Sompo was the 2nd largest shareholder after Bigmotor’s founder. Plus, Bigmotor would recommend and sell Sompo insurance for cars sold off their lots. The new insurance sales more than offset the insurance fraud losses.

For comparison, imagine if this was Carmax and State Farm. The outcry would be ridiculous.

Additionally, Kouichi was way over the line when it came to meeting sales numbers. One of the items that came to light was that dealerships were killing trees if they blocked views of a dealership from the street. This happened enough that multiple Google Street View cars captured employees poisoning trees. It happened enough that it inspired cosplay in Japan. I mean, how many trees do you have to kill to inspire cosplay? This is also a bigger deal in Japan than it would be in the US, but it would still be a problem in the US.

Kouichi became famous for berating and mocking salespeople and managers who didn’t make their sales numbers. A visit by Kouichi to a dealership took a multi-day preparation effort to avoid getting fired. Finally, as a new employee, you were also expected to buy a car. One example included a 10-year car loan at 9% interest for a new employee. Yikes.

The leaking training video, questions from other insurers, dead trees, and more finally brought the scandal to a head in July of 2023. As a result of the scandal, Kaneshige Hiroyuki and Kouichi resigned. Profits plummeted. Two other competitors have admitted to committing similar fraud trying to keep up with Bigmotor. The CEO of Sompo also resigned.

This is worse than just tone at the top. This wasn’t just a CEO hinting at impropriety to make quarterly numbers, this was taking a successful business and burning all remaining ethics to the ground. I also thought it was interesting that competitors felt they had to commit fraud to keep up. It’s interesting that Sompo got pulled into this fraud. The rot wasn’t contained to a single firm but spread to other firms around them.