Toyota plans to be less aggressive with parts suppliers during price negotiations for the first half of fiscal year (FY) 2014/15, mainly to help companies that stood by it in difficult times, reports financial daily The Nikkei. The automaker aims to use the gentler price reduction to strengthen the health of not only its top tier of suppliers, but also smaller companies. Toyota will reportedly ask for a price cut of less than 1% for the first half of next FY against a typical reduction of 1.0-1.5%, given favourable exchange rates, economic trends and other factors.
With the yen's sustained weakening against the US dollar opening up the prospect of all-time high profits at Toyota for the current FY ending in March, it can afford to protect the small and mid-size component suppliers – numbering in the hundreds – that derive most of their revenues in Japan and benefit less from exports.
The gesture is commendable given that Toyota is under pressure to agree to its union's wage demands in light of Prime Minister Shinzo Abe's call for corporate Japan to raise wages to mitigate the impact of the planned sales tax rise in April, even though vehicle sales are expected to slow following the increase. Toyota asked for a 3% price cut in 2011 and 2012, when the yen was strong and the company faced parent-only operating losses. By asking for a smaller price cut, Toyota is looking to maintain an unrivalled component supply cluster at home – a critical factor in the automaker's commitment to produce a minimum of thre million vehicles annually in Japan.
News of the softening of Toyota’s stance comes a few weeks after General Motors rolled back a number of terms and agreements with its suppliers that were seen as unfavourable for the supply base. GM is also reportedly offering to help suppliers identify waste, forecast costs, reduce raw-material costs, and look for other ways to reduce costs. After several years of profitability being largely attributable to increasing transaction prices, GM has shifted to a programme aimed at driving cost out of the systems and stepping toward working more closely with suppliers to jointly find and eliminate inefficiencies and reduce costs.
GM has also launched a Strategic Supplier Engagement programme, seen as purchasing chief Grace Lieblein’s move to improve relations with suppliers. The programme will offer such perks as better access to GM purchasing staff, increased and earlier access to GM's product and technology plans, and even training to those suppliers that rate highly on certain metrics. The programme is designed to appeal to those suppliers further down the chain and as a means of appeasing suppliers as GM looks to accessing the supply base's best innovations.
Whether it be for access to technology or security of volume planning, it’s increasingly clear that OEMs are granting more leverage to the automotive supply base.
