Japan’s Fair Trade Commission To Recommend Nissan Motor Not Reduce Subcontractor Payments

Yomiuri Shimbun file photo
Nissan Motor Co. head office in Yokohama

The Fair Trade Commission has decided to recommend Nissan Motor Co. does not repeat its practice of unilaterally reducing purchase prices for auto parts from subcontracted suppliers in violation of the Law against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors, according to sources. The recommendation aims to prevent similar incidents in the future.

Nissan unlawfully reduced purchase prices for more than 30 subcontractor companies over several years. The total amount of the reductions is estimated to be more than ¥3 billion.

It is likely the highest amount since the subcontract law was enacted in 1956. According to the sources, Nissan admitted fault and said it had already paid the difference to the parts makers.

In response to general price increases and to stimulate a virtuous cycle, the government implemented a policy that allows subcontractors throughout the supply chain to pass increased costs on to purchasers.

In this environment, the FTC has stepped up monitoring transactions between major companies and their subcontractors to ensure fairness.

According to the sources, Nissan lowered purchase prices by several percentage points from the pre-agreed amounts for more than 30 subcontractors dating back several years at the latest. The subcontractors produce wheel parts and other auto parts.

Nissan unilaterally decided the percentages of the purchase price reductions. One of the subcontractors saw a reduction of more than ¥1 billion, according to the sources.

Nissan also set goals, based on purchase prices in the previous business year, for price reductions in percentage point terms and checked that the goals were achieved.

Nissan presumably lowered purchase prices to reduce its costs and improve its balance sheet. It is possible that the unlawful practice continued for decades.

The subcontractors feared that if they refused the unlawful price cuts, Nissan would cease doing business with them.

A Nissan official told The Yomiuri Shimbun, “We are looking into the details.”

The subcontract law prohibits companies from lowering purchase prices after they have been decided — at the time an order is placed — except in cases where the subcontractor is responsible, for example if the product is faulty or the delivery is delayed.

Currently, the record for the highest amount in price reductions that violate the subcontract law is about ¥2.563 billion, set in September 2012 when the FTC made a recommendation to the Japanese Consumers’ Co-operative Union.

In recent years, the FTC annually provides guidance for 7,000 to 8,000 cases involving business deals with subcontractors and has issued recommendations in several cases.

In December 2022, the FTC publicized the names of 13 companies and organizations which they alleged made unfair business deals, including finalizing prices without consulting the subcontractor.

The FTC declared that businesses which unfairly pass on cost burdens to subcontractors would face a strict response.