1Tokyo-Nissan Motor Co. said it has decided to cut salaries of executive directors by 10% next month because of the yen's sharp rise. Japanese exporters have been trying to overcome the yen's appreciation-33% against the u.s. dollar since last fall-by various means, but Nissan is the first major Japanese auto maker to opt for cutting compensation of its executive directors. Executive directors are senior members of the company who at the same time serve on the board of directors.
It is also the first time Japan's second largest auto maker has cut compensation for executive directors since its founding in 1933. It isn't known yet if other auto makers will follow, but officials at other auto companies said they are conducting a "very strict review of spending plans" because of the sharp appreciation of the yen.
"We haven't decided yet to go so far [as Nissan], but review of [previously approved] budgets [at each section] is underway," said an official at Honda Motor Co. "We have never experienced such a strict tightening as this one before," he added. A spokesman for Mazda Motor Corp. said that the company currently doesn't plan to follow Nissan, but added that "if the yen would be further appreciated, naturally it [such a plan] will come up."
The higher yen erodes earnings of Japanese companies unless they boost prices. But it isn't easy for most Japanese exporters to fully offset the adverse effect through price increases because higher prices make their product less competitive in international markets.
Nissan raised prices on its cars for the u.s. market an average of 4% last December, but officials said the boosts weren't high enough to offset the sharp appreciation of the yen. Because of the yen's gain, Nissan said it expects its recurring profit for the year ending March 31 to decline 16% from a year earlier, to the equivalent of $696.4 million on sales of 21 billion, up 3.6%.
Early this week, the Ministry of International Trade and Industry decided to ask major companies to try to absorb the adverse effect of the yen's appreciation by increasing prices, rather than by passing on the loss to their subcontractors. The decision is based on a recent government survey in which 14% , or 640, of subcontractors polled replied that they had received price reduction demands from companies they supply.
According to the survey, some majors forced subcontractors to take back goods, citing as an excuse the yen's appreciation. Among subcontractors in various export-oriented industries, those in transport equipment, including autos, and precision instruments were prominent with complaints of "bullying" by the larger concerns.
Meanwhile, corporate bankruptcies stemming from the yen's appreciation continue to grow. According to Tokyo Shouko Research Ltd., a major private credit research agency, such corporate failures (counting only those with bad debts of $56,000 or more) totaled 39 in the four months ended February 28. The number is expected to increase "considerably" toward this summer. Akira Akiyama, a senior analyst at the agency, said, "For the time being, the number of such bankruptcies would increase at a considerable pace."
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