NAGOYA-- Though Toyota Motor logged a record profit for the most recent quarter, the suppliers that form the group's backbone are groaning under cost increases and production cuts forced by a series of certification scandals.
"The production stoppages have placed a financial burden on suppliers and dealers," Toyota accounting chief Masahiro Yamamoto said at Thursday's earnings conference, acknowledging that while the certification scandals had only a slight impact on group earnings, they are hurting parts makers.
Toyota's consolidated operating profit for the April to June period reached a record high of 1.3 trillion yen ($8.9 billion), the company reported on Thursday.
Japan's top automaker announced that it would boost investment in human resources, which includes support to suppliers, by about 50 billion yen this fiscal year from the initial 380 billion yen.
Toyota will continue to cover suppliers' growing labor and energy costs in the second half of the fiscal year ending next March, as it did in the first half.
Although Toyota's Japan operations enjoyed profit growth, this owed mostly to the effect of the weak yen. Domestic production for the luxury Lexus brand, a moneymaker for Japanese factories, fell 9% to 760,000 vehicles.
One of the hardest-hit members of the Toyota group has been Daihatsu Motor, which was forced to suspend production after it revealed cheating on testing required for vehicle certification. At Toyota itself, misconduct was found in seven models, shipments of three of which -- including the popular Yaris Cross SUV -- were halted.
Another seven models were found to be noncompliant on Wednesday, leading to more shipment suspensions. The company has other models waiting to be assessed by overseas authorities for standards compliance. The scandal could widen even further.
Quality control missteps have also hurt Toyota. A defect was discovered in doors of the Prius, leading to a recall and a halt in production for about two months from April.
Yet compared the 2008 global financial crisis and the sweeping recalls of 2009 and 2010, Toyota's earnings performance and production volumes have held strong.
Toyota skidded to a consolidated operating loss of 461 billion yen in the year ended March 2009 and a booked profit of just 147.5 billion yen the following fiscal year.
This fiscal year, the company is projecting a 4.3 trillion yen profit -- down 20% from last year, but a vast improvement over past slumps.
In terms of production, output is expected to surge 40% to 10 million vehicles this fiscal year, compared with about 7 million vehicles in the year ended March 2010.
But the certification scandals have led to production cuts at group members like Aisin and Toyoda Gosei. A Futaba Industrial subsidiary has had to shut down some of its production lines.
"It is unclear whether the reduction can be made up for within the year," said Fumiki Yazawa, director at spring manufacturer Chuo Spring.
In response to the scandals, Toyota has lowered its domestic daily output cap by 500 vehicles from the previous 14,500, saying it wants to give production sites the ability to take more time. "From a profit standpoint, the truth is we really want them to make more," said an executive at a parts maker in central Japan's Aichi prefecture, Toyota's home.
It remains to be seen whether Toyota can pass on the benefits of its strong performance to suppliers.
Toyota orders parts from a total of about 60,000 companies in Japan, with annual transactions of about 10 trillion yen. Returning profits to suppliers would have a particularly big effect on small and medium-size companies with modest product lineups and production scale.
As parts manufacturers struggle with rising material prices and labor costs, the question is whether they will be able to raise prices.
The percentage of Toyota first-tier suppliers that say they have been able to pass through the full increase in material costs is 2.2%, lower than the 4.6% average across all industries, according to Teikoku Databank. "The burden on first-tier suppliers is heavy," said a representative at the research firm.