Small Toyota Supplier Bankruptcy Shows Pandemic Disruption Risk

The bankruptcy of a small car-parts supplier to Toyota Motor Corp. highlights the risks of disruption that Japan’s auto sector faces from the pandemic.

Koryu, an unlisted rubber products maker with 16 employees, filed for bankruptcy this week, according to Teikoku Databank Ltd. It became one of 218 firms in Japan that have gone bankrupt for reasons related to the coronavirus outbreak, and the third for a Japanese auto supplier, the Tokyo-based credit research firm said.

While Japan’s biggest automakers such as Toyota have ample cash to buttress operations as the pandemic causes car sales to tumble, their smaller suppliers have less leeway to ride out plunges in revenue. Carmakers are moving to support suppliers with cash to avoid disruptions in production as auto demand recovers, with Toyota’s chief financial officer saying last month that the company is preparing to help struggling firms.

“Automakers are keeping close tabs on their suppliers, which make hundreds of parts,” said Katsuyuki Nakai, director of corporate ratings at S&P Global Ratings. “If the suppliers run out of cash, they want to be ready to inject funds immediately.”

Toyota holds the biggest cash pile among Japanese non-financial companies, according to Bloomberg-compiled data. It had 4.4 trillion yen ($40 billion) in cash and cash equivalents at the end of March, and announced last month 1.25 trillion yen in loan agreements with Japanese banks.

Japan’s corporate sector as a whole is sitting on cash that’s bigger than most countries’ gross domestic product, and investors have said more of the funds should be used for growth or returned to shareholders. Corporate retained earnings rose to 484 trillion yen in the first quarter, according to finance ministry data.

Executives at automakers Subaru Corp. and Mazda Motor Corp. have also said they would help suppliers get government assistance and provide them with cash if needed.

--With assistance from Tsuyoshi Inajima and Jacqueline Poh.

To contact the reporter on this story:
Ayai Tomisawa in Tokyo at atomisawa@bloomberg.net

To contact the editors responsible for this story:
Andrew Monahan at amonahan@bloomberg.net

Ken McCallum, Reed Stevenson

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