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All eyes on Toyota pay hike move

Publication Date : 06-02-2014

 

With shunto spring wage negotiations getting into full swing, all eyes have turned to Toyota Motor Corp., the trend-setter for wage talks. Will Toyota decide on a base pay hike for the first time in six years?

On Tuesday, Toyota said it expected an operating profit of 2.4 trillion yen (US$24 billion) in consolidated accounts for fiscal 2013 ending in March. Many other companies, particularly in the steel industry, will be major beneficiaries of the high-flying automaker.

The weak yen, brought on by the government’s Abenomics economic policy and far weaker than expected, is the biggest factor behind Toyota’s prospect of recording its biggest profit ever. The company’s operating profit is expected to increase by 1.08 trillion yen from the previous fiscal year. Of this amount, 880 billion yen, or more than 80 per cent, is attributed to the effect of the weakened yen.

Another factor that has helped boost profits was the company’s efforts to cut all unnecessary costs, by such measures as reducing the cost of procuring parts and improving productivity at its factories. These efforts come from lessons the company learned when it posted a group net loss for the 2008 business year following the collapse of Lehman Brothers.

“In addition to the weak yen, [factors contributing to the record profit include] our efforts to reduce initial costs and boost sales,” Takuo Sasaki, a managing officer of Toyota, said at a press conference in Tokyo on Tuesday.

Toyota’s positive earnings have benefited major business partners, such as Nippon Steel & Sumitomo Metal Corp., the steel industry’s leading company, which returned from the red to post a 192.7 billion yen after-tax profit on a consolidated basis in the April-December period. Other companies in the industry also saw improvements.

In 1999, Nissan Motor Co. reduced its steel suppliers and called on the steel industry to cut prices. After this so-called Ghosn shock, named after Nissan’s then Chief Operating Officer Carlos Ghosn, automakers and major steel companies engaged in heated price negotiations. During negotiations last summer, however, Toyota showed a softer approach “unseen in recent years,” in the words of a steel industry source, and agreed on the industry’s request to raise prices of steel stocks for the first time in two years.

“The price increase and the demand for automobiles resulted in steady performances, which led to good results,” Kobe Steel Vice President Hiroaki Fujiwara said at a press conference on Tuesday about the company’s financial report.

Another question is whether Toyota will use its huge profit to raise base pay. The company is expected to lead the way in pay hikes, so the movement is likely to spread to various industries, in the same way the company’s good performance has a ripple effect.

At the time of the spring wage negotiations in 2002, Toyota did not approve a base pay hike, though the company’s operating profits exceeded 1 trillion yen. The decision determined the trend in wage negotiations that year in other industries as well.

Few foresee a repeat in this year’s shunto wage negotiations. Between 2006 and 2008, during which Toyota saw operating profits of between 1.8 trillion yen and 2.2 trillion yen, the company implemented a base pay increase of 1,000 yen. While Toyota’s labour union is expected to seek a base pay hike of 4,000 yen, the company is likely to raise it at a rate at least higher than the 2006-2008 level.

US$1 = 101 yen

 

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