Toyota Faces Spiraling Build Costs of New Cars

A photo of cars rolling off two production lines at a Toyota factory.

Photo: Toshifumi Kitamura/AFP (Getty Images)

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Toyota will not press its suppliers to lower component costs, Boeing workers agree to strike, and U.S. automakers struggling to fill job vacancies. All that and more in The Morning Shift for July 25, 2022.

1st Gear: Toyota

Everything is getting more expensive these days, because of inflation, or so the economy people tell me. This isn’t just the case for me and you, as automakers are also feeling the pinch. Reuters reports that Toyota has decided against asking its suppliers to lower prices as it tackles spiraling build costs.

Despite having agreements in place to cut the cost of components between July and September this year, Reuters says that Toyota has not approached its suppliers to continue the deal later into the year:

Toyota Motor Corp will not unilaterally press its suppliers for lower prices for the second half of its fiscal year and is also considering supporting their energy bills, an executive said on Monday.

The move reinforces an attempt by the world’s largest automaker by sales to shoulder more of the burden faced by suppliers as global supply chain woes continue and energy costs soar.

Like other automakers, Toyota has been battered by the global shortage of semiconductors and COVID-19-related lockdowns, prompting repeated cutbacks in vehicle production and frustrating suppliers.

Toyota initially sent out a request for lower prices for the July-September period to some suppliers, but the company decided not to make a request to cover the October-March period since its production plan has yet to stabilise, said Kazunari Kumakura, Toyota’s purchasing group chief. It also did not make a request for the April-June period.

The firm said it was investigating ways to support its suppliers as energy and fuel costs continue to soar.

According to Toyota, supply chain issues and spiraling prices of raw materials are hitting its production costs. Earlier this year, the firm warned that its material costs could “more than double” this year to reach 1.45 trillion yen ($10.64 billion).

This sky-high cost is what led the firm to initially approach suppliers about lowering their prices between July and September this year. But now, it looks like the firm will take the hit in its full-year profits instead. Either that, or the cost of a new Toyota is about to skyrocket.

2nd Gear: 2,500 Boeing Workers to Go on Strike

Boing is facing strike action at three of its U.S. plants after workers voted against a new contract being offered by the plane maker. According to the Associated Press, roughly 2,500 workers will go on strike from August 1 at Boeing manufacturing sites in St. Charles County, St. Louis County and Mascoutah, Illinois.

In a statement, the International Association of Machinists and Aerospace Workers District 837 union said: “We cannot accept a contract that is not fair and equitable, as this company continues to make billions of dollars each year off the backs of our hardworking members.”

In response to the proposed strike action, the AP reported that Boeing has a “contingency plan” in place “to support continuity of operations.” According to the AP:

A Boeing spokesman said the company’s contract offer included competitive raises and a generous retirement plan that included Boeing matching employee contributions to their retirement plan up to 10% of their pay.

Boeing is expected to give an update on its finances this week when it releases its next quarterly earnings report on Wednesday. Earlier this year, Boeing reported a $1.2 billion loss in the first quarter, but just last week the company announced that Delta Air Lines had ordered 100 of its 737 airplanes.

3rd Gear: Automakers Prepare for Recession

U.S. automakers GM and Ford are now faced with the unenviable task of convincing investors that everything is, in fact, fine. According to Reuters, two of the country’s largest car companies are now working to assure investors that they can survive a “recession without skidding into the red.”

The site reports that analysts have been slashing production estimates and share price targets for both firms as they tackle the ongoing Covid-19 pandemic, supply chain issues and the “downbeat outlooks for the global economy.”

However, both automakers appear well-placed to deal with any further struggles they might face on the global stage. Unlike during the 2008 recession, demand for new cars remains high. According to Reuters:

Some analysts say a recession could be mild, and demand for vehicles could recover more swiftly than in the past. One big difference from past slowdowns is that GM and Ford’s U.S. dealers are not sitting on big inventories of unsold vehicles that would have to be discounted to sell.

“We believe the set-up over a multi-year horizon is skewing more positively,” Bank of America analyst John Murphy wrote in a note, citing lean inventories and pent-up demand from consumers who held off buying as vehicles became scarce and expensive.”

Despite the challenges faced by both firms, GM said earlier this month that it expects second-quarter net income of $1.6 billion to $1.9 billion, while Ford predicts full-year operating profit could be between $11.5 billion and $12.5 billion.

4th Gear: Tesla to Open Supercharger Network

One of the biggest selling points of a Tesla is the access to its Supercharger network of public fast-charging stations. It’s undeniably a great service, and one that makes living with a Tesla a little bit easier than other EVs. Well, only if you can see past all their other flaws.

Now, this network of more than 1,200 charging points across 50 states could be opened up to regular EV drivers across America. According to the Wall Street Journal, Tesla is trying to tap into public funding to build more electric-vehicle charging points and open up some of Supercharger network to EVs made by other manufacturers, after a previous White House announcement this month. The WSJ reports:

The EV-market leader is bidding for a portion of billions in federal and state dollars that are up for grabs in coming years as the Biden administration, auto makers and many states try to accelerate a fast-charger build-out along highways to reassure drivers that they can travel without fear of losing power.

Tesla already has a national network of fast chargers for its own drivers, but they aren’t available to other types of vehicles in the U.S. For a year, the company has said it plans to open its U.S. network to others, though details about timing and whether it would open existing stations or new ones have been sparse. Recent regulatory filings and other documents indicate that the company is applying for public funding that, if granted, would require access by other makers of EVs to the network.

The firm has already been awarded $6.4 million toward building chargers in rural areas of California, and White House filings show that it will begin building public charging stations for other EVs by the end of the year.

5th Gear: U.S. Auto Plants Can’t Find Enough workers

Rising commuter costs and lower unemployment rates are making it harder for car makers in the U.S. to fill vacancies at factories across the country. Now, a new report from Automotive News has outlined the steps companies are taking to entice new workers.

According to Automotive News:

Automakers are being forced to raise starting wages on these once- coveted jobs just to stay ahead of other employers such as Amazon warehouses and fast-food franchises, as well as their own nearby suppliers and manufacturers in other industries.

The shortage of labor has made it harder for automakers to restock depleted dealer inventories and shown some of the downsides of building factories in far-flung locations.

“We’re looking under rocks for people to go to work right now,” said Alex Sadler, who specializes in training and development for the economic development arm of the Tennessee Valley Authority and has worked on several automakers’ developments, most recently Ford Motor Co.’s Blue Oval City project.

Steps taken to try and entice workers back into auto factories include assistance with commuter costs, higher starting salaries and even adding bonuses for workers who stay long-term. It’s all coming as firms try to boost their output through expansion, and by replacing workers that have left in recent years.

Reverse: Nasty Way to Go