Photo/Illutration The Fair Trade Commission's news release on its admonishment to Nissan Motor Co. (The Asahi Shimbun)

Nissan Motor Co. has been unilaterally reducing its payments to numerous subcontractors in the illegal squeezing of suppliers.

The auto giant has been committing this exploitative act for many years. Such a business practice of exploitation by large companies leveraging their strong positions as contractors to impose their will on subcontractors is inexcusable.

Nissan must clarify the responsibility of its management for the violation and rid itself of “subcontractor bullying.”

Last week, the Fair Trade Commission issued a cautionary notice to Nissan calling on the company to take steps to prevent a recurrence. Nissan was found to have violated the subcontract law for unilaterally reducing the payment amounts from the originally agreed prices under the guise of “rebates.”

According to the antitrust watchdog, over a period of about two years until last spring, Nissan reduced the amounts due to 36 subcontractors, including makers of aluminum wheels, by more than 3 billion yen ($20.3 million).

This is the largest case of the kind uncovered by the FTC. This practice of coercive price-cutting to meet Nissan’s cost reduction targets has been ongoing since at least the 1990s.

As a major automaker, Nissan stands at the apex of a pyramid-like subcontracting structure, generating enormous profits as the beneficiary of this setup. It is responsible for ensuring that costs are fairly reflected in prices within its supply chain.

If the company unjustly siphoned profits from its small and midsize suppliers, that was an utterly indefensible act.

Nissan President Makoto Uchida apologized at a March 13 news conference for his company’s violation of the subcontract law. Nissan should review its past and current transactions with subcontractors to identify instances of forced price reductions and clarify responsibility.

It is true that the competitive strength of Japan’s automotive industry has been supported by relentless cost-cutting efforts by both car manufacturers and their suppliers.

However, such efforts must be based on an equitable relationship between automakers and their subcontractors and the benefits should be shared fairly according to the contributions.

Nissan’s exploitation of subcontractors is clearly unacceptable. However, subcontractors are generally in weak positions because they risk massive damage if they lose business dealings with key customers and find it difficult to resist demands for cost reductions from these major clients.

Therefore, businesses placing orders with suppliers have a duty to continually confirm the fairness of their transactions. Nissan’s chief executive should demonstrate the company’s solid commitment to this principle both internally and externally.

The government’s guidelines concerning the issues published last year also call on chief executives to clearly pledge to allow subcontractors to pass along higher costs in the prices.

Shifting burdens onto subcontractors has been one of the factors inhibiting wage increases among small and midsize enterprises.

The goal of realizing the virtuous economic cycle of rising prices and wage hikes, the principal focus of this year’s “shunto” spring labor negotiations, remains elusive without the widespread adoption of fair cost pass-throughs.

Profit generation through cost-cutting has been the primary corporate mantra in Japan for years as the nation’s economy was trapped in deflationary doldrums, but sustainable growth is unattainable if burdens are pushed onto subcontractors and workers.

Alongside wage increases and proactive investments, it is urgent to ensure compliance with laws and improve business practices. The FTC, for its part, must also intensify its monitoring to eradicate the unfair and abusive practice of squeezing subcontractors.

--The Asahi Shimbun, March 14

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