The nation’s automakers have long relied on parts from domestic sources that are part of their “keiretsu” corporate groupings, but now they are turning to imports to cut costs and survive growing global competition.
South Korean producers are increasingly being sourced for the parts, as their prices are lower than their Japanese counterparts and of better quality than parts made in China, analysts say.
“It is possible the number of South Korean-made parts introduced by Japanese carmakers will double in about five years,” said Hitoshi Kaise, senior project manager in charge of the auto industry for consulting firm Roland Berger Ltd.
Kaise estimates that at present, South Korean manufacturers supply less than 10 percent of the overall parts used in cars assembled in Japan.
But he said the automakers will probably use more South Korean-made parts outside Japan, including for cars produced at their plants in the United States, as the cargo would avoid tariffs under the U.S.-South Korean free-trade agreement.
Some automakers are already aggressively importing South Korea-made parts.
Mitsubishi Motors Corp. last year started to use headlights made by Hyundai Mobis, a parts maker of the Hyundai Motor Co. group, for its 2012 Lancer sedans.
Nissan Motor Co. said in June that 40 percent of the parts in its newly released NV350 Caravan, which is manufactured at its Kyushu plant, are from neighbor countries, about 50 percent of which are from its group parts maker Renault Samsung Motors and other South Korean producers.
Nissan aims to boost the overall level of imported parts to 40 percent in the business year to March 2017 from 20 percent in June 2011, CEO Carlos Ghosn said at the time. Nissan does not disclose what parts it imports or what percentage they amount to in terms of the overall total.
Nissan Chief Operating Officer Toshiyuki Shiga told reporters earlier this month that it is time for Nissan to source components based on cost.
“If some domestic parts are simple but costly, we have to switch to imported ones. If they are complex and precise, we have to keep using domestic parts,” Shiga said.
Shiga said selecting which components to import at low cost is also important to maintain domestic production, which may otherwise be transferred abroad, particularly to Southeast Asia, where labor costs are much lower and where cars can be shipped directly to nearby growing markets without being affected by the strong yen.
Because the auto industry is multilayered in terms of providers, and thus is a major source of domestic employment, carmakers have tried to refrain from completely moving their production bases offshore.
Some have pledged to maintain a certain level of domestic production, with Toyota holding the line at 3 million vehicles produced in Japan and Nissan and Honda at 1 million units each.
Toyota Motor Corp. also apparently wants to import from South Korean firms that supply parts to Hyundai Motor Co., which is now a major archrival of Toyota, Nissan and other Japanese carmakers.
Toyota has invited South Korean parts makers to a business fair held at its headquarters in Aichi Prefecture over the past two years, a move considered rare for the country’s top carmaker.
Supported by the South Korean government-linked Korea Trade-Investment Promotion Agency, the suppliers displayed their parts along with those of their Japanese counterparts.
“We are inviting not only South Korean suppliers but also anyone with competitiveness,” Toyota spokesman Hideki Fujii said, declining to identify the companies that participated in the event.
Bigger business meetings were also held in Seoul.
Last November, 11 Japanese automakers and 50 South Korean parts makers attended the second annual meeting, which was staged jointly by the two nations’ trade ministries. A similar event will be held later this year, according to the Japan Automobile Manufacturers Association, which supported the event.
To expedite the import of low-priced South Korean parts, the two nations’ transport ministers agreed July 16 to launch a pilot project to speed the process by allowing trucks to bring parts aboard ferries from Busan to Shimonoseki, Yamaguchi Prefecture.
Under the agreement, the two countries will speed up registration and other procedures to enable freight carriers Nippon Express Co. of Japan and Chunil Cargo Transportation Co. of South Korea to facilitate the delivery of parts trucked to a Nissan plant in Kyushu via Shimonoseki.
But the Japanese automakers and South Korean parts makers need to make the process smoother and establish closer relations, because there is a clear difference in how vehicles are produced in the two countries.
Japanese carmakers want South Korean parts suppliers to follow the Japanese design process. Japanese car designers often alter their initial designs as a result of discussions involving automakers and parts suppliers.
South Korean makers tend to stick to original designs after sweating the details from the beginning, according to Kaise of Roland Berger.
“But once a carmaker introduces a few parts (and establishes relations with South Korean parts makers), more parts will be imported,” he said.
Low-cost deals may be good news for automakers but bad news for the domestic parts makers with which they have had cozy ties. They are now facing tougher competition with their Asian rivals.
Under growing pressure from abroad, Aichi-based auto parts manufacture Denso Corp., a major Toyota supplier, is trying to import lower-tier components from South Korea to make itself more competitive globally.
Denso, which chose to make its potential Asian rivals business partners, aims to increase purchases of parts from South Korea, Thailand and China by 40 percent to ¥35 billion by the end of next March.
Denso is also looking at South Korean automakers as potential customers, and to better penetrate the South Korean market it consolidated its engineering base on the peninsula by transferring engineers in three different plants to one location in Seoul.
“The decision aims to increase cooperation between engineers and salespeople to boost the marketing of South Korean automakers,” said Denso spokesman Goro Kanematsu.
“Suppliers will lose their competitive edge if they continue to just follow their client Japanese automakers,” Kaise said. “It is very important that they cultivate new clients abroad on their own.”