Toyota Motor Corp. and Nissan Motor Co., two of Japan's leading manufacturing companies, chalked up record profits in the business year that ended March 31. Other major firms, including Honda Motor Co., also made their best showings in spite of falling prices. These results indicate that deflation is not as bad as it seems and that cutting costs can be an effective way of generating profits.
Toyota's operating profits exceeded 1.3 trillion yen on a consolidated basis, while Nissan's topped 700 billion yen, bringing its heavy debt load (2 trillion yen in fiscal 1999) to virtually zero. The profit surge is attributed not only to increases in exports and overseas production but also to cost reductions both in production and sales. What is significant is that lower prices for parts and materials contributed materially to cost cuts.
In this sense, it can be said that both carmakers -- and many other firms dedicated to efficiency -- have turned deflation upside down. Toyota, whose no-frills "kanban" parts inventory management system is almost legendary, has gained from the falling prices of parts and materials it buys. The same is true of Nissan, which has reinvented itself under drastic restructuring and revival plans initiated by Mr. Carlos Ghosn, who has earned himself the nickname "Le Cost Killer."