| NAGOYA, Japan
NAGOYA, Japan Feb 3 Toyota Motor Corp
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 jeopardising the
firm's position in Toyota's supply chain.
Toyota did not comment on details about pricing and cost
arrangements with its suppliers.
Its president Akio Toyoda has acknowledged that "there are
expectations on Toyota" to pass on the benefits of Abenomics to
its workers, but he has not clarified how that would be done.
Toyota is under political pressure to raise wages as its
union is set to demand a 1 percent base pay rise, which would be
a modest hike by international standards but represent a
watershed for Toyota workers who earn less every month on
average now than they did a decade ago.
However, a Toyota wage rise would not necessarily represent
a triumph for Abenomics - a mix of fiscal spending, economic
reform and monetary stimulus designed to pull Japan out of a
decades-long slump - in the broader auto industry.
Lower down the supply chain, many companies, especially the
smaller ones, are unlikely to be able to raise base wages,
partly because of the price and cost-cutting pressure. And given
that the minnows of the industry account for the bulk of its
jobs, that could be worse than a zero-sum game.
"Polarisation between large automotive parts-makers and
smaller ones is likely to intensify because the big ones have
the resources to take their business overseas and the smaller
ones don't, and this could also become more evident in employee
salaries," said Seiji Manabe, professor at Yokohama National
University and an expert on automotive suppliers.
HAVES & HAVE-NOTS OF ABENOMICS
To be sure, the fruits of Abenomics are trickling down below
the carmakers, to some of the biggest or most technologically
advanced parts suppliers which are making innovations and riding
high on the wave of surging profits in the auto sector.
But the virtuous cycle of Abenomics - rising wages, prices
and spending - is a stranger to the smaller companies.
Japanese parts manufacturers employ 612,000 people, almost
four times as many as carmakers and motorbike manufacturers
combined. Workers involved in the auto industry in one way or
another are estimated at 5.48 million, about 9 percent of
Japan's working population, according to Japan's auto lobby.
Rengo, Japan's top labour federation, has called on its
member unions for an minimum 1 percent base wage rise.
The Toyota union, which is covered by Rengo, is set to ask
for a rise of 1.1 percent, or 4,000 yen ($39.22) per month, in
the average base salary for Toyota workers, in addition to
bonuses totalling 2.4 million yen and an incremental pay rise.
Toyota's domestic rivals, including Nissan Motor Co
, Honda Motor Co and Suzuki Motor Corp
, are also under union pressure for a pay rise.
For Toyota, a 1.1 percent wage hike for an estimated 240,000
Japan-based employees, including its group companies, would add
around 11.5 billion yen to its fixed-cost base, though this
would be a tiny fraction of the 880 billion yen in additional
operating profit that the global business expects to make in the
year to end-March.
The company spent years relentlessly cutting costs, a trend
unlikely to be reversed, and it also demands price-reduction on
suppliers every six months, which generally run at 1-3 percent,
industry sources said.
Under a drive launched in 2012 to make its cars more
competitive, Toyota is boosting use of standardised parts.
Toyota says its intention is to introduce better functions
across a wider range of models, and cost cuts are just one of
the many means of improving its vehicles.
According to individuals familiar with the situation, this
means Toyota is giving larger chunks of business to a smaller
number of suppliers, and it is asking for cost cuts of 30 to 40
percent for some parts - in certain cases double that level.
A senior executive at a parts supplier for Toyota said the
Aichi-based firm had managed to cut costs by 40 percent for some
parts by redesigning products and switching to cheaper imported
materials, and so far that made it more competitive.
"The question is whether we accept an even bigger cut. If we
do so, then that soon becomes the norm, even if we are bleeding
in dire red," the executive said.