Toyota suppliers taking hit

Auto parts makers fear bankruptcy unless they can claim public aid

Bloomberg

Toyota Motor Corp.’s production cuts will cause bankruptcies among suppliers if the government restricts aid to large manufacturers, a car parts group said.

Suppliers “are extremely worried that the loans will be limited to the top-tier companies,” Hisataka Nobumoto, chairman of the Japan Auto Parts Industries Association, said Thursday. “If the current sales environment continues, various outcomes, bankruptcies included, will result.”

February auto sales in the United States, the world’s largest car market, slid to the lowest rate since December 1981, with Toyota’s sales sinking 40 percent and Honda Motor Co.’s tally dropping 38 percent.

Toyota said earlier this week it may cut production by 12 percent next business year to about 6.2 million vehicles, compared with the suppliers’ estimate of 7 million.

“Suppliers are suffering badly,” said Atsushi Ishii, a supply chain analyst in Tokyo at auto consulting company CSM Worldwide. “Failures would create big problems for the carmakers,” which may have to support the suppliers to ensure production.

Toyota’s financial unit reportedly said it may ask for ¥200 billion in loans from the government. Toyota Financial Services Corp. spokesman Toshiaki Kawai said the unit is in talks with state-owned Japan Bank for International Cooperation, without confirming the amount. Honda also said it may ask to borrow state money to lend to U.S. car buyers.

Nihon Koshuha Co., a subcontractor for Toyota affiliate Toyota Boshoku Corp., suspended operations on March 3 because of funding difficulties and falling orders from the carmaker.

Koito Manufacturing Co., the world’s largest maker of headlamps, said last week it is halting production at two domestic factories. The company, which expects net income to drop 99 percent this year, said the halts could last six months or a year.

Toyota’s vehicle production forecast was lower than parts suppliers expected and will exacerbate the extent of parts production shutdowns, Nobumoto said. “It won’t be a matter of just a few days or a few months,” he said.

Denso Corp., the world’s largest listed auto parts maker, expects a full-year loss of ¥64 billion, and Aisin Seiki Co., the nation’s largest maker of car transmissions, expects a net loss of ¥12 billion in the year ending in March. Both suppliers are Toyota affiliates.

The government will use some of its foreign-exchange reserves to lend to the state-owned JBIC, which gives financing to companies operating abroad, Finance Minister Kaoru Yosano said this week. The ministry may lend about $5 billion to the bank this month, he said.

U.S. auto suppliers met in Michigan this week to help President Barack Obama’s car task force set priorities for which parts makers should be saved in an industry rescue.

The Original Equipment Suppliers Association in the U.S. and the Motor & Equipment Manufacturers Association requested about $18.5 billion in aid from the Treasury Department on Feb. 13.

As many as one-third of the more than 4,000 U.S. auto suppliers face “imminent financial distress,” the OESA said.

Japanese parts suppliers may be eligible to receive some aid from the U.S. government, Nobumoto said.