Consumer Fraud

Strong yen prompts Toyota to ask suppliers for ‘shared sacrifice’

The rising value of the Yen is putting pressure on Toyota to cut back on costs in order to remain competitive in the global market, where most currencies are far weaker than Japan’s. The appreciating Yen has been putting a chokehold on Toyota and other Japanese exporters as they struggle to recoup from the March 11 earthquake and tsunami that devastated much of Japan’s eastern coast, creating widespread power shortages and disruptions in the industrial supply chain.

Toyota isn’t new to the cost-cutting game. Under the stewardship of Katsuaki Watanabe, who led Toyota until 2009, the automaker instituted a series of cost -cutting measures in its drive to overtake General Motors as the world’s top automaker in sales. Some say that Toyota’s new model represented a betrayal of the very things that made Toyota great — its dedication to quality, the reliability and safety of its cars, and customer satisfaction.

Just weeks after Akio Toyoda assumed the company reigns in 2009, Toyota launched the first in a series of massive recalls of cars, trucks, and SUVs for defects causing the vehicles to speed out of control. Toyota recalled more than 8 million vehicles in three separate recalls in as many months. Several other problems not related to sudden acceleration but possibly connected to the automaker’s overall slide in quality prompted additional recalls in other models, further calling Toyota quality and reliability into question.

Sales weakened by safety flaws, supply diminished by natural disasters, and affordability threatened by a strong Yen have allowed GM to reclaim its spot as the world’s leading carmaker. Meanwhile, Toyota loses 34 billion yen ($443 million) in operating profit for every 1 yen appreciation against the dollar, according to Bloomberg.

To help offset costs this time, Toyota is asking its Japan-based parts suppliers to reduce their costs or risk being replaced by suppliers in other countries.

Toyota’s call on its suppliers for shared sacrifice is a bold one for the company, which according to Bloomberg, “has some of the closest ties with suppliers in the industry, as it shares costs savings, guarantees business and holds stakes in the biggest members of its parts-makers group.”

Laying off employees is virtually unheard of in Japanese management models, so it’s good to see that Toyota really is trying to do the right thing this time by shaving coasts from the top, where the blows are more easily absorbed.