Nissan Violates Subcontract Law: Forcing Contractors to Accept Reduced Prices Is Inexcusable

Editorial

14:59 JST, March 9, 2024

It is unacceptable for a major manufacturing company to force its contractors to bear a heavy burden just to increase its own profits. Nissan Motor Co. should seriously reflect on this matter and ensure that the company conducts its business with contractors in an appropriate manner.

The Fair Trade Commission found that Nissan’s unilateral lowering of the prices it paid to auto parts manufacturers upon delivery constituted a violation of the Subcontract Law and issued a recommendation calling on Nissan to come up with measures to prevent a recurrence of such an incident.

According to the FTC, Nissan paid 36 subcontractors that manufacture such parts as wheels and air conditioners at prices about 3% to 5% lower than the previously agreed upon prices from January 2021 to April 2023.

The law prohibits the reduction of a price which was agreed upon at the time an order was placed, even by mutual agreement. Exceptions are made in cases where the contractor is at fault, such as the delivery of defective products. This is to protect contractors who are in a weak bargaining position. It is clear that Nissan’s actions were contrary to the law.

The contractors were unable to refuse the demand for reduced prices, fearing that their business with Nissan would be terminated. The amount of the illegal reductions totaled about ¥3 billion, the highest amount recognized by the commission since the law was enacted in 1956.

Nissan has acknowledged the incident and said it has now paid all of the about ¥3 billion in reductions to the various suppliers. But it is believed that such illegal reductions began at least as far back as the 1990s, and the roots of the problem are deep.

A Nissan representative on the issue reportedly told the FTC that it is a method that has been used for many years, and the official was not aware of its illegality. The lack of awareness about compliance is serious.

In order to actualize the virtuous cycle that the government is aiming for in the economy, it will be important for companies to change their management practices focused on cost-cutting and strive to raise wages.

In particular, it is necessary to spread wage increases to small and midsize companies. For this to happen, it is essential for major companies to allow small and midsize companies to reflect their higher raw material and labor costs in the prices in business dealings. Actions like Nissan’s run counter to this and must be eradicated.

Among the nation’s auto manufacturers, Mazda Motor Corp. also received recommendations over violating the law in 2008 and 2023. In the wake of the Nissan case, the FTC plans to request the Japan Automobile Manufacturers Association, an auto industry group, to prevent such misbehavior from happening again.

Large companies’ practice of foisting cost burdens onto small and midsize companies is not limited to the auto industry.

In December 2022, the FTC took the unprecedented step of publicly announcing the names of 13 companies and organizations, including logistics and food wholesalers, which had failed to discuss with their small and midsize business partners how to reflect rising costs in the prices in their deals. The commission should further enhance its monitoring of such business practices.

(From The Yomiuri Shimbun, March 9, 2024)