"Don't Sell Parts to Hyundai"
Toyota Leader's Shocking Words

An increasing number of car parts makers are moving into Kyushu, the westernmost main island of Japan. It is certain that they are looking at South Korea and China as their promising future markets by posting themselves in the area that is geographically closer to those countries than most of other places in Japan. South Korea's Hyundai Motor Co., which is growing rapidly, is especially targeted at. Toyota, however, appears to be uneasy about this trend. It might order its affiliated parts makers, "Don't sell parts to Hyundai."

Mazda's Hofu plant in Yamaguchi Prefecture, western Japan. Plants in Kyushu area is the gateway to the Asian Continent.

Japan's auto industry has been converging on Kyushu increasingly in recent years, and it could be said that Kyushu is now a "Car Island." Daihatsu Motor Co., Ltd., maker of light and compact cars, has a new plant in Oita Prefecture on the island, that started full-scale operation last year, raising its auto production in the area to 500,000 units in fiscal 2005, or roughly 10% of the total production in the country. Toyota has started to increase the production capacity of its Kyushu plant in Fukuoka Prefecture. Adding together with the Kyushu plant of Nissan Motor Co., Ltd., which has a production capacity of 500,000 units, and Bofu plant of Mazda Motor Corp., it is considered certain that the production gets closer to 2 million units a year in the near futures.
The area is geographically close also to south-eastern part of South Korea, where Hyundai and other carmakers of that country have their main production plants manufacturing some 1.65 million cars.

Toyota Would Face Trouble if its Affiliated Parts Makers Supply to Hyundai

Kyushu's development to a "Car Island" spurred the increased moving into the area of parts makers also. Denso Corp., Japan's top electric and electronic parts maker, has invested 20 billion yen for the construction of a engine parts plant in Kitakyushu, which will start producing fuel injection devices by the end of this year. A total of more than 50 auto parts companies have advanced so far into Kyushu since 2000. Of the parts makers affiliated with or cooperating with Toyota, those advanced into Kyushu account for about 30%. As the auto production increase will be accelerated in the future, people in the car industry have the view in common that the number of Toyota-affiliated firms in the area will rise.

The Toyota-affiliated parts makers expanding into the Kyushu area are looking at the possibility of supplying to Hyundai as a matter of course. This, however, create a problem for Toyota.

Toyota studies cars of the world by disassembling them to all pieces. Hyundai is rapidly gaining high reputation for the durability, advanced utilization of electronics and design of its cars. Its cars are also relatively cheaper for the performance. It has been found of late that Hyundai suddenly expanded the use of Toyota-affiliated parts makers as its suppliers in recent years while it did not do so in the past. It has been said in the past that Hyundai had its own parts suppliers.

"Maybe Toyota Should Raise Stockholdings of Affiliates"

It could be said that major car parts are developed jointly by carmakers and their affiliates. So, "It's like fattening a rival company at Toyota's own development expenses," says Toyota official. Some Toyota executives said, "We may have to pressure (the parts makers) not to do business with Hyundai. It may sound extremely drastic, but we may have to think of raising the stockholdings of our affiliates to make them do as we tell them."

There is a reason for Toyota to be so obsessive about Hyundai. Toyota's biggest rival used to be General Motors Corp. of the United States. But GM has been suffering from declining sales and it is even rumored now that it may go bankrupt. Toyota could not help being conscious of Benz and Honda, but the two are not so aggressive as they used to be. Some people inside Toyota say, "Our rival is no longer GM. It's Hyundai."

The parts makers rightly have what they want to say, of course. For example, Honda does not have its own affiliated parts makers and procures necessary parts mainly from Toyota-affiliated makers. Such Toyota-affiliated parts makers as Denso and Aisin Seiki Co., Ltd. have been supplying parts to Honda and Mitsubishi Motors Corp. As a result, production costs for the parts went down, consequently making it possible for Toyota to buy parts at lower prices. There was an indication that Toyota was encouraging its affiliated parts makers to sell their products to other automakers also. "There was at least a time when we were told to sell as much parts as possible to other carmakers, except for Nissan," one of the Toyota-affiliated companies said.
The tug-of-war between Toyota and its parts makers and other supplies seems to last for some while to come.