View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. News
June 15, 2022

Automakers help out hard pressed suppliers – report

Attempting to shore up already strained supply chains.

By Graeme Roberts

With inflation biting around the world, Toyota Motor , Nissan Motor and others are shouldering more of the burden of soaring raw materials prices, or extending other help to hard-hit parts makers, executives told Reuters.

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 20 years, the news agency said.

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 Reuters recently. “We are discussing with our suppliers because in the end their sustainability is our sustainability.”

Tokai Rika , 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 JPY9.1 billion (US$68 million). Instead its customers, mainly Toyota , absorbed almost 15% of the higher costs, and will take more this year, a spokesperson told Reuter.

Tokai Rika estimates its customers – again, mainly Toyota – will this year shoulder nearly two-thirds of an expected JPY7.9 billion hit from higher prices of metals, resin and other materials.

It continues to discuss higher semiconductor and logistics costs with customers, the spokesperson told the news agency.

Toyota is paying “closer attention” to the concerns and problems of business partners, the Tokai Rika spokesperson added. The automaker 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 told Reuters, declining to comment specifically on Tokai Rika .

The report said 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 20%.

Nissan already shoulders much of the cost of increases in raw materials and precious metals, Gupta, the chief operating officer, told Reuters 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.

Unipres , 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 to the news agency.

That approach marks a significant change for Nissan, Reuters noted. 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 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.

Honda Motor supplier Musashi Seimitsu, a maker 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 , 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 to Reuters.

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.

Mitsubishi Motors 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 tolf Reuters.

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 told Reuters.

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. The top stories of the day delivered to you every weekday. A weekly roundup of the latest news and analysis, sent every Monday. The industry's most comprehensive news and information delivered every quarter.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU

Thank you for subscribing to Just Auto