TOKYO—For decades, Japan’s powerful automakers had a playbook to deal with deflation: press suppliers for lower prices on everything from seat belts to wire harnesses and promise volume.
Now, with inflation biting around the world, Toyota Motor Corp., Nissan Motor Corp., and others are shouldering more of the burden of soaring raw materials prices, or extending other help to hard-hit parts makers, executives say.
The piecemeal support to suppliers being negotiated across Japan’s auto industry highlights the potential disruption from the dramatic weakening of the yen, now at its lowest in two decades.
Japanese automakers, historically beneficiaries of a weaker currency through sales overseas, are now focused on managing the threat to suppliers. For many parts makers, the weaker yen compounds the pain of higher input costs for materials.
“Inflation is happening and definitely we have to address it,” Nissan Chief Operating Officer Ashwani Gupta told reporters recently. “We are discussing with our suppliers because in the end their sustainability is our sustainability.”
Tokai Rika Co. Ltd., a maker of steering wheels and other parts that is partly owned by Toyota, is one supplier that has benefited from its help.
Initially it expected higher materials costs to cut operating profit in the just-ended fiscal year by 9.1 billion yen ($68 million). Instead, its customers, mainly Toyota, absorbed almost 15 percent of the higher costs, and will take more this year, a spokesperson said. Tokai Rika estimates its customers—again, mainly Toyota—will this year shoulder nearly two-thirds of an expected 7.9 billion yen hit from higher prices of metals, resin and other materials.
‘Closer Attention’
Toyota is paying “closer attention” to the concerns and problems of business partners, the Tokai Rika spokesperson added. The world’s biggest automaker by sales owns almost a third of the parts maker and accounts for around three-quarters of its sales.The automaker was taking measures to reduce the burden on its suppliers, Toyota spokesperson Shiori Hashimoto said, declining to comment specifically on Tokai Rika.
The semiconductor shortage and pandemic forced Toyota to make repeated cuts to its production plans, increasing the cost burden for parts makers. It has 400 primary suppliers and some 60,000 suppliers in total. Toyota has warned that “unprecedented” increases in raw materials prices could cost it $11 billion this year and cut full-year profit by a fifth.
Nissan already shoulders much of the cost of increases in raw materials and precious metals, Gupta, the chief operating officer, told reporters recently.
Cost Transmission
Honda Motor Co. supplier Musashi Seimitsu Industry Co., a supplier of transmission gears and suspension parts, is negotiating with automakers to reflect the impact of higher shipping and materials costs, the company told Reuters. Another Honda supplier, fuel tank- and sunroof-maker Yachiyo Industry Co. has seen little impact because it buys raw materials directly from Honda and factors higher costs into the price of parts sold to its parent, it said.Honda declined to comment.
The automaker was working with suppliers to keep costs down in the face of a second straight year of rising prices, Chief Financial Officer Kohei Takeuchi said on a recent earnings call. Still, it was forecasting a lower full-year profit, he said.
