Itochu Corp. said Wednesday that it and an investment fund have set up a new company to take over main operations of used car dealership Bigmotor Co., which had been mired in an insurance fraud scandal.
The new company, Wecars Co., will run Bigmotor's core businesses such as used car sales and repair operations, with all management executives of the troubled company dismissed from their posts. Bigmotor was renamed Balm Co. and will focus on reparations.
Itochu and its energy unit Itochu Enex Co. took a 49.9 percent stake in Wecars and investment fund J-Will Partners holds the rest, with combined spending of about 40 billion yen ($250 million).
Itochu hopes to acquire the holdings of J-Will Partners in the future, Itochu Executive Officer Masatoshi Maki said at a press conference.
Through the new firm, the trading house expects to create synergy with its group operations such as rent-a-car services company Tokyo Century Corp. and luxury car importer Yanase & Co. as well as its retail insurance business, Itochu said.
Bigmotor was engulfed in the high-profile scandal last year after it was found to have charged excessive repair fees by intentionally damaging customers' cars and making fraudulent insurance claims.
The used car seller with around 250 outlets had been seeking sponsorship, as the scandal dented its sales.
"We will not leave any compliance violation unaddressed," Shinjiro Tanaka, a former Itochu executive and president of the new company, said at the press conference.
As part of efforts to strengthen compliance, the new firm recruited a former head of the Consumer Affairs Agency as a board member and a former top official at the Supreme Public Prosecutors Office as an auditor, Itochu said.
Bigmotor's founder Hiroyuki Kaneshige and his son Koichi were blamed for creating the toxic work culture that led to many compliance violations.
The founding family sold their stake in the old company and completely backed out of the business, while employees involved in the wrongdoing either left or were severely punished, according to people familiar with the matter.
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