In trickle-down Abenomics, some Toyota suppliers come up dry

Mon Feb 3, 2014 5:13am EST
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By Yoko Kubota

NAGOYA, Japan (Reuters) - Toyota Motor Corp (7203.T: Quote) is one of the conspicuous success stories of Japan's radical efforts to revive its economy, with profits rebounding and its 60,000 workers in Japan hoping this year to receive their first base wage rise in six years.

But when the carmaker reports on Tuesday quarterly profits that are likely to be nearly five times what it booked a year ago, its continued revival will mask a much less optimistic mood among the auto industry's smaller firms.

For them, the reflationary economic policies of Prime Minister Shinzo Abe, dubbed "Abenomics", have failed to trickle down beyond the big carmakers, which are actually continuing to squeeze their networks of suppliers.

Pay rises are the last thing on their minds.

"Behind the recovery at the big carmakers is their pressure on suppliers to cut parts prices. It's been hitting us like a body blow," said a senior executive of a company that makes drivetrain-related parts for a major Toyota supplier.

At this small company based in Aichi prefecture, home to Toyota and much of its supply chain, orders have yet to recover from the global financial crisis, and profitability has actually fallen. Operating profit margin has fallen to below 2 percent from around 5 percent in 2008, largely due to pressure to cut parts pricing, said the executive.

Like other suppliers interviewed for this story, the executive declined to be identified for fear of jeopardizing the firm's position in Toyota's supply chain.

Toyota did not comment on details about pricing and cost arrangements with its suppliers.   Continued...

A woman walks among Toyota Motor's cars at the company's showroom in Tokyo November 6, 2013. REUTERS/Toru Hanai