Akebono Brake Industry's financial troubles that were revealed this week represent the immense cost cutting pressure auto suppliers are under, as carmakers try to allocate money to their costly pursuit of next-generation technologies.
The Japanese brake supplier announced Wednesday that it plans to revive struggling operations through an out-of-court process known as alternative dispute resolution, asking for a moratorium on debt repayments from lenders. After failing to secure orders for new SUV and pickup trucks from General Motors, its U.S. operations quickly deteriorated, taking a toll on its finances.
As automakers like Toyota Motor -- Akebono's chief shareholder and major client -- scramble for an edge in technologies for connected, automated, shared and electrified cars, they are pressing suppliers for price cuts to free up funds for development. The resulting chill in relations is affecting the keiretsu system of tightly knit suppliers that has formed the bedrock of the Japanese auto industry.
The catalyst for the restructuring move came in early January, when a regional Japanese bank pressed the brake maker for debt repayment. Akebono does not have negative net worth and its cash flow is relatively healthy, but regional banks would be hard-pressed to accept a moratorium on repayment as the Bank of Japan's zero-rate policy squeezes the lenders' profits.
Should the 30 regional banks that Akebono does business with demand prompt debt repayments all at once, it would cripple the brake maker's cash flow. The company filed for the turnaround process with an independent body to prevent this scenario.
Akebono employs nearly 2,800 subcontracting companies, according to Teikoku Databank. If fears over its creditworthiness were to spread, it could impede the brake maker's ability to secure components, potentially damaging its ability to provide a stable supply of products. Unlike court-led proceedings, Akebono's workout scheme, led by an independent body, affects only bank claims, leaving claims held by suppliers untouched.
The filing for a resolution comes as Japanese automakers veer toward next-generation auto tech. Toyota and its peers are rushing to acquire technology talent to contend with American challengers like Waymo -- the automated driving cousin of Google -- as well as Nvidia, which makes semiconductors for automated cars, and ride-hailing giant Uber Technologies.
But this shift in the focus does not sit well for Japan's existing supply chain, built largely around traditional gasoline cars.
Akebono is a known face of that supply chain, with its executives having chaired councils of parts suppliers as well as Toyota's own supplier association, Kyohokai. It quickly built an overseas presence as well, but its 2009 purchase of U.S. brake facilities from German parts maker Robert Bosch backfired. Orders plummeted due to the effects of the global financial crisis, and production could not keep up once demand recovered, dragging down the entire group.
Besides Toyota, Akebono counts General Motors as a major client, along with Nissan Motor and GM compatriot Ford Motor. Companies including Bosch have sought to buy the company in recognition of its quality brakes -- a crucial factor, as defects can lead to problems like shaking or screeching along with safety risks. But Toyota and other Japanese automakers stepped in to block the purchase.
That tight relationship has cooled of late. There have been "very few opportunities to receive business and technological guidance" from finished-car makers, a representative of a Kyohokai member company said.
And this change is not limited to between Akebono and Toyota.
Nippon Steel & Sumitomo Metal is at odds with Toyota and its peers over the pricing of specialty steel products. The automakers are "seeking prices that ignore increases in the price of steel materials," said Executive Vice President Shinichi Nakamura. This has squeezed the earnings of small and midsize metalworkers.
Akebono intends to "seek support, such as capital increases, from potential sponsors centering around Toyota, as well as investment funds," according to a company executive. The brake maker will meet with creditors three times and submit a turnaround plan that includes a capital increase, by June. It aims to firm up its financial footing by securing investments from multiple parties, but how Toyota responds will be crucial.
Mizuho Bank, part of Mizuho Financial Group and a key lender to Akebono, has decided to extend a 5 billion yen ($46 million) line of credit to ensure it can stay afloat through the process. The credit line, to be backed by the company's shareholdings and real estate assets, will last from Feb. 12 through June 11.
Many suggest that the growing rift between parts suppliers and automakers is the root cause of recent quality problems in Japan's auto industry. Automakers' tight bonds with suppliers, a mainstay of the keiretsu system, have let them make the low-cost, high-quality cars that have made Japan an automaking powerhouse.
The automakers will be forced to contend with that shaken relationship as they reassess their supply chains for the era of connected, automated, shared and electrified cars.
Nikkei staff writer Jun Watanabe contributed to this article.