Focus: As yen tumbles, Japan's automakers take cost burden off their suppliers

Yachiyo Industry Co

15/06/2022 10:25

* Carmakers aim to help suppliers as materials prices surge
    * Automakers absorb costs in departure from deflation
playbook 
    * 'Supplier sustainability is our sustainability' -Nissan
COO
    * Inflation disruption comes in wake of COVID supply chain
woes

    By Maki Shiraki, Satoshi Sugiyama and Norihiko Shirouzu
    TOKYO, June 15 (Reuters) - 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  7203.T , Nissan Motor Corp  7201.T  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 measures show how automakers are attempting to shore up
already strained supply chains, wracked by COVID-19 pandemic
lockdowns and a global shortage of semiconductors, even at the
cost of lower profit margins for themselves. The piecemeal
support being negotiated across Japan's auto industry also
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  6995.T , a maker of steering wheels and
other parts that is partly owned by Toyota, is one supplier that
has benefited from 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% 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.
    It continues to discuss higher semiconductor and logistics
costs with customers, the spokesperson said.   
    
    '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 for
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 "unprecedented" increases in raw
materials prices could cost it $11 billion this year and cut
full-year profit by a fifth. 
    
    NISSAN TECHNOLOGY
    Nissan already shoulders much of the cost of increases in
raw materials and precious metals, Gupta, the chief operating
officer, told reporters recently.
    It is now paying suppliers ahead of deadline and sending out
production forecasts further in advance, both of which are a
help to parts makers, according to an executive at one of its
suppliers who declined to be identified so he could speak about
a business partner.
    Unipres Corp  5949.T , which specialises in stamping
technology, avoided price cuts this year after winning support
from Nissan, Unipres President Nobuya Uranishi told a recent
investor briefing that was not open to the general public,
according to notes of his comments taken by an attendee and
reviewed by Reuters.
    Unipres declined to comment.
    That approach marks a significant change for Nissan. Under
ousted former chairman Carlos Ghosn, it was known for squeezing
suppliers every year for cheaper parts in return for high-volume
orders.
    Nissan Chief Executive Makoto Uchida told Reuters in an
interview last month that the investment needed to shift to
all-electric vehicles demanded a more long-term approach to
suppliers - not just a focus on "massive growth of volume".
    For Unipres, that has meant getting to work with Nissan at
an early stage on development of parts and technology, rather
than winning on price alone, President Uranishi told the Unipres
investor briefing, according to the notes.
    Such collaboration doesn't guarantee contracts for parts,
but gives the supplier critical feedback at an early stage in
the development process, he said.
    
    COST TRANSMISSION
    Honda Motor Co  7267.T  supplier Musashi Seimitsu Industry
Co  7220.T , 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  7298.T , 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. 
    Meanwhile Mitsubishi Motors Corp  7211.T  is meeting with
its small- and medium-sized suppliers and will move quickly to
help if they are being threatened by cost increases, a senior
executive said, declining to be identified so he could speak
openly about company policy.
    The automaker will also step in if smaller suppliers have
funding trouble, the executive said.
    "We are communicating more closely than ever with our
suppliers to ascertain if there are any problems," Mitsubishi
Motors spokesperson Hiromu Hatanaka said.    
    
($1 = 134.4200 yen)

 (Reporting by Maki Shiraki and Satoshi Sugiyama in Tokyo and
Norihiko Shirouzu in Beijing; Additional reporting by Nobuhiro
Kubo; Editing by David Dolan and Kenneth Maxwell)
 ((david.dolan@tr.com; +81 3 6441 1526; Reuters Messaging:
david.dolan.thomsonreuters.com@reuters.net))