Toyota Motor Corp., Asia's biggest carmaker, is telling parts suppliers in Japan to slash prices or face being replaced by overseas rivals as the yen's value appreciates, four people involved with the discussions said.
Toyota, which loses 34 billion yen ($443 million) in operating profit for every 1 yen appreciation against the dollar, told parts makers it intends to increase procurement in emerging markets in cases where domestic suppliers can't match overseas prices, according to the people, who declined to be identified because the talks are private, according to The Detroit News.
Parts-making affiliate Toyota Boshoku Corp. led declines among the automakers' suppliers in Tokyo trading, dropping 5.8 percent to its lowest close since March 2009.
Toyota seeks to cut costs to compensate for the yen's climb as it restores output in Japan after the March 11 earthquake and tsunami damaged factories and caused parts and power shortages.
Toyota officials in North America declined to comment on any discussions with suppliers regarding cost.
The issue is especially pressing in Japan, where the yen's appreciation against other currencies has eroded the profitability of Japanese vehicle exports.
"The high yen must be pressuring Toyota to review its supply chain and to seek cheaper options," Hiroshi Ataku, an analyst at IHS automotive in Tokyo said.
Carlos Ghosn, chief executive officer of Toyota's biggest domestic rival Nissan Motor Co., said Thursday that Japan faces a "hollowing out" of its industries should the government fail to take steps to counter the yen's rise.
Toyota made the demand to its 219 largest domestic suppliers, including Denso Corp. and Aisin Seiki Co., at a meeting held at the end of August in Nagano prefecture, the people said.
Denso Corp. dropped 3.4 percent to 2,249 yen at the 3 p.m. close on the Tokyo Stock Exchange, the lowest since Aug. 24. The benchmark Nikkei 225 Stock Average rose 1 percent.
Toyota spokeswoman Amiko Tomita in Tokyo declined to comment on the automaker's discussions with partsmakers about prices.
Nissan's Ghosn, after taking over as president of the Japanese automaker in 2000, slashed the number of domestic suppliers to cut costs and restore the automaker to profit. That recovery is now threatened by the Japanese currency's sharp rise, Ghosn has said.
The yen strengthened to a postwar record 75.95 yen versus the dollar in August and has averaged about 80 yen in the fiscal year started April 1, compared with almost 90 yen in the same period a year earlier.
Toyota has committed to manufacturing at least 3 million vehicles a year in Japan and has "naturally" favored its affiliated domestic parts suppliers, Ataku of IHS said.
"Toyota may have to follow what Ghosn did with Nissan's parts supply chain 10 years ago, and search for the cheapest possible options," he said.
Japan-based suppliers should procure more parts from overseas as one way to reduce their prices, Toyota said, according to the people involved in the discussions. The company requested to reduce prices by as much as half to some of its suppliers, according to one of the people.
The automaker, based in Aichi prefecture, Japan, has said it expects global production to rise 5.1 percent from a year earlier to 7.72 million units in the 12 months ending March 31.
Toyota rose 0.4 percent to 2,549 yen.
Toyota's global output increased 10.6 percent to 626,817 vehicles in August, the first increase after the government ended subsidies for fuel-efficient cars in September 2010, the Toyota City, Japan-based carmaker said Sept. 28. Domestic output gained 12 percent to 252,374, while overseas production rose 9.8 percent to 374,443, it said.
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