Subcontract Law Violation: Heavy Responsibility of Toyota Motor Questioned

A subsidiary of Toyota Motor Corp., Japan’s largest manufacturer, has been found to be in violation of the Subcontract Law. The entire group should promote proper transactions with subcontractors and thoroughly implement measures to prevent a reoccurrence of similar incidents.

The Japan Fair Trade Commission has found that Toyota Customizing & Development Co., a subsidiary of Toyota Motor, violated the Subcontract Law when it forced its subcontractors to store molds for a long period of time for free, among other things, and issued a recommendation to implement measures to prevent a reoccurrence.

The Toyota subsidiary manufactures parts for general vehicles and also builds special purpose vehicles such as ambulances. The company forced 49 companies to store such items as molds for bumpers for free, even though it had no plans to place orders for a long period of time.

The damage suffered by the subcontractors could total tens of millions of yen.

In addition, the company is believed to have improperly returned products to 65 of its subcontractors, claiming that the products were defective, even though no quality inspections had been conducted.

The Subcontract Law prohibits large companies from using their advantageous position to force subcontractors to provide money or services. The latest violation is an act of unilaterally imposing a burden on subcontractors and cannot be overlooked.

The opacity of business practices involving molds has been an issue throughout the manufacturing industry for some time. In 2019, the government created a set of basic principles that require major companies to bear the cost when instructing their subcontractors to store molds.

As the auto manufacturing industry, in particular, uses a large number of molds, the industry as a whole should have been aware of the problem of forcing subcontractors to store molds for free.

Nevertheless, it is unfortunate that the violation was discovered in the Toyota Group, the industry leader.

Toyota Motor is the parent company of Toyota Customizing & Development and holds more than a 90% stake in the company. The group’s business transactions must be reexamined to eliminate any wrongdoing.

The JFTC has been actively pushing to correct the practices of companies mistreating subcontractors. The commission has made 13 recommendations under the law in fiscal 2023, an increase of seven compared to the previous fiscal year.

In March, the commission also found Nissan Motor Co. to have violated the law by reducing the amount it paid to subcontractors for delivered products after the order was placed. The commission should continue to strengthen its monitoring of these cases.

Making efforts to ensure that transactions with subcontractors are appropriate is a serious challenge for the Japanese economy. It is vital for companies not only to focus on cutting costs but also to change their mindsets to increase wages in order to realize the virtuous cycle of the economy that the government is aiming for.

The auto manufacturing industry, including related companies, employs about 5.5 million people and has a large influence. It must take the lead in setting an example.

(From The Yomiuri Shimbun, July 6, 2024)