Futu Securities has learned that while the Japanese government is actively promoting improved treatment of subcontractors, particularly small businesses in disadvantaged bargaining positions, a subsidiary of Toyota Motor (TM.US) has been criticized for violating Japan's subcontractor protection laws. The Japan Fair Trade Commission (FTC) stated on Friday that Toyota Customizing & Development Corporation (TCD) in Yokohama violated related laws by having dozens of suppliers store metal die-castings and other items without charge and without paying any storage fees. In addition, the FTC found that TCD forced 65 suppliers to accept returns of so-called defective products that had not gone through inspection.

According to the FTC, the total cost of these improper acts to suppliers is estimated at about 54 million yen (approximately 336,100 US dollars). TCD compensated suppliers last month and promised to reimburse the affected suppliers for storage fees.

This incident comes as the Japanese government is working to improve relations between large manufacturers and suppliers to promote wage growth and consumer spending and stimulate economic growth. Economists and government officials say that rising import costs for small companies and pressure from large clients to lower prices are a bottleneck to Japan's economic growth.

Since investigations revealed problems with Toyota's vehicle safety certification and issues with Toyota's own operations, Japanese authorities have taken tough measures against the automaker's governance issues. Despite Toyota setting a new record in 2023 for passenger vehicle production and sales, surpassing Volkswagen, and becoming the world's largest automaker for the fourth consecutive year, a series of scandals have damaged Toyota's reputation.

Nissan Motor also received a warning from the United States Federal Trade Commission for illegally lowering prices paid to certain suppliers, and the incident has attracted widespread attention in the domestic media and put pressure on Japan's auto industry to take collective preventive measures.

It is understood that metal die-castings are commonly used materials in mass production of auto parts. A report by the Japanese Ministry of Trade in 2019 explicitly stated that the storage costs for such parts should be borne by customers. Although industry organizations, including the Japan Automobile Manufacturers Association, have worked to promote these guidelines, the FTC's actions against other companies indicate that this issue remains widespread.

According to the TCD website, the company has been producing and selling ambulances and other special vehicles domestically and internationally since its establishment in 2018, and has been involved in Toyota's technology development. Toyota holds 90.5% of TCD's shares, while the remaining shares are held by Toyota Tsusho Corporation.

Affected by this news, Toyota's stock price fell 2.1% in the Japanese market on Friday. According to reports, the Japanese Ministry of Land, Infrastructure, Transport and Tourism is considering taking administrative measures against Toyota. Toyota Motor has announced the end of an investigation into certification violations and has not found any new violations.