Toyota Suppliers Say Yen Drop Means Further Price Cuts Unlikely

Toyota Motor Corp. (7203) suppliers said they expect the automaker will refrain from asking them to cut prices as a weakening yen boosts profit.

The reductions won by the carmaker over the past two years because of the yen’s strength will probably not be maintained in the April to September period, said Kenichi Noda, executive managing officer at Aichi prefecture-based Toyota Boshoku Corp. (3116), an affiliate that makes auto interior parts and bumpers.

Toyota raised its annual profit forecast 10 percent yesterday and President Akio Toyoda said last month that Japanese carmakers were beginning to see “light” as the yen has weakened more than 17 percent against the dollar over the past 12 months. He had warned that the domestic industry may collapse should the currency remain near the postwar high of 75.35 reached Oct. 31, 2011.

“With the yen now in decline, Toyota no longer has any real cause to sustain that pressure” on partsmakers to cut prices, Issei Takahashi and Masahiro Akita, auto analysts at Credit Suisse Group AG, wrote in a report last month.

A one-yen decline against the dollar adds about 35 billion yen ($377 million) to Toyota’s operating profit, the carmaker estimates. Toyota makes about 45 percent of its cars in Japan and has vowed to maintain domestic production of at least 3 million vehicles a year, while rivals including Nissan Motor Co. and Honda Motor Co. shifted some output overseas to cut costs as the yen rose.

Yen’s Reversal

The Japanese currency fell to as low as 93.18 yen on Feb. 4, the weakest since May 13, 2010. The yen averaged 85.11 between Nov. 1 and Feb. 5, compared with 77.39 in the same period a year earlier.

The brightening outlook for Toyota, Japan’s biggest company and the world’s largest carmaker, is spreading to its supply chain.

Denso Corp. (6902), the automaker’s biggest supplier, last week raised its profit forecast 16 percent to 160 billion yen, a five-year high. Partsmakers including Toyota Boshoku, Tokai Rika Co., Koito Manufacturing Co., Aisin Seiki Co. and Toyoda Gosei Co. (7282) also increased their earnings projections in the past week.

Toyota has controlled its own costs by pressing parts makers to cut prices over the past two years after the the yen climbed, eroding the value of overseas earnings and making it harder for the automaker to compete with South Korean and U.S. rivals.

Price Cuts

The parts price cuts amounted to as much as 4 percent in fiscal years 2011 and 2012 from the previous level of 1.5 percent, according to estimates by Bank of America Merrill Lynch and Credit Suisse. The reductions will narrow to 1.5 percent in the year starting April 1, according to the estimates.

“Analysts’ views are based on their own take of the situation, not decisions announced by Toyota,” said Dion Corbett, a spokesman for Toyota. He declined to discuss price talks between Toyota and suppliers.

Toyoda Gosei, a maker of air bags, instrument panel modules and steering wheels, and Toyota Boshoku said they haven’t started talks with Toyota about April-September pricing.

“We may not have to worry as much as we used to about cutting prices, as long as the yen is weakening,” said Tadashi Arashima, president of Toyoda Gosei. “It’s natural that we would expect pricing pressure to ease.”

To contact the reporters on this story: Ma Jie in Tokyo at jma124@bloomberg.net; Masatsugu Horie in Osaka at mhorie3@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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