Breaking from tradition, Honda offers lump-sum payments to suppliers instead of installments

The Japanese automotive industry was rocked earlier this month when Nissan was fined by Japan’s Fair Trade Commission for owing around JPY 3 billion (RM 94.4 million) to suppliers for decades.

Following that, Japan’s Nikkei reported that Honda will be paying suppliers lump-sum payments instead of protracted instalments for auto part dies. The metal dies used in car part manufacturing are often made to order and adhere to strict quality standards.

This would incur high costs which are usually borne by the automaker. Still, parts manufacturers can face millions of dollars worth of initial investments to produce the dies for those parts.

Nikkei reported that Honda could change to lump-sum payments beginning next month. Before this, most payment is done in 24 installments which adds burden to small parts makers.

A Honda-affiliated parts company told Nikkei that a lump-sum payment would “reduce risks related to recovering funds and reduce interest costs”. This change could help boost the competitiveness of parts companies as wage hikes are seen across the supply chain.

However, not every parts company would be willing to accept a lump-sum payment as the 24-installment plan has been in practice in the industry for over 20 years. To some of these companies, it is a long-standing custom that cannot be changed.

Following Nissan’s and Daihatsu’s failure to comply with their suppliers, other carmakers have been making changes as suppliers face the brunt of higher costs of production and materials.

Also read: Abuse of dominant position - Japan's Fair Trade Commission wants corrective actions by Daihatsu over price negotiations with suppliers

Suzuki provided one-time payments to its suppliers as well as raising the procurement prices for some parts. Mazda has also been covering suppliers’ inventory costs incurred due to reduced production following the semiconductor shortages.

Meanwhile, Toyota is said to reflect the higher labour costs in the purchasing pieces of parts starting from the April-September period.