Toyota’s decision to move suppliers to invoicing in euros has sent chills down the spine of the UK’s automotive components sector and evoked dramatic stories of supplier angst.

Suppliers are already buffeted by demands from the main vehicle manufacturers to cut costs. Having to invoice in euros is seen by the suppliers that have spoken to the media as another way for manufacturers to pare down supply chain costs.

But how dramatic is Toyota’s move in reality? Are the press stories really more knee-jerk reaction than thoughtful comment?

The automotive sector is supposed to be one of the best examples in the UK of how to put proper partnerships in place, and to be a template for supplier relations within other sectors, including aerospace.

“Toyota’s news shouldn’t have come as a bolt out of the blue for its suppliers,” said Jim Marler, managing director of consultancy Partnering & Procurement Services.

“It may be that some suppliers have pushed for it. Toyota is generally seen as a good client, if a bit clinical and systems orientated.”

Test of strength

Details of Toyota’s decision are sketchy as the factory is closed for its annual maintenance shutdown. Exactly how Toyota will move in this direction with its suppliers will be a good test of the strength of its partnering deals, added Marler.

Adopting the euro will move the risk of fluctuating exchange rates with the pound from the client to the supplier, said Peter Cooke, professor of automotive industry management at the Nottingham Business School at Nottingham Trent University.

Whether Britain adopts the euro or not, it is a fact of automotive supplier life if the company wishes to do business on the Continent, let alone with UK companies. And getting used to working with the euro with a domestic client should be the best way to enter the euro fray. “Whatever happens, the euro is coming,” added Cooke.

And whatever happens, Rover will continue to get its suppliers on the euro, a process that began last autumn when the car maker was owned by BMW. “The response has been mixed,” said a Rover spokesperson, “but a large number have successfully made the switch to the euro.”

Many automotive suppliers are reluctant to talk about trading in euros for fear of upsetting their clients. “If you want the business with the car maker then you do as they say, including taking on board the euro,” one supplier told SM.

“It is likely that the big companies call the shots,” said a spokesman for the Society of Motor Manufacturers and Traders, which doesn’t hold figures on how many suppliers are euro-capable. “When Rover decided to use the euro, a lot of suppliers realised the way forward and made the change. Being able to deal in euros also made these suppliers more competitive in dealing with companies on the Continent,” he added.

“There is nothing out of the ordinary in dealing in euros,” according to another supplier, an aluminium castings firm with a percentage of business in the automotive sector who wished to remain anonymous. The worry is that supplier margins will be cut in the process as Britain is not in the euro zone, meaning that the pound is floating against the euro.

Several automotive suppliers are already using the euro, making political decisions over whether to adopt the single currency, in effect, an exchange rate-fixing exercise, according to Edward Roberts, chairman and chief executive of Peterson Springs, a second-tier supplier to Toyota. Joining the euro is neither good nor bad, “but inevitable”, he added.

Currency dealer

The automotive spring maker already has to deal in eight currencies, including the euro. What it will need to have is an exit for those extra euros that it might get if the first-tier supplier to which it sells decides that, because it is getting euros from Toyota, it will ask its suppliers to invoice them in euros as well.

“Peterson Springs’s workforce won’t want euros, so we will have to find an exit for ours,” Roberts said.

The euro chain-reaction has begun and will roll on regardless of political will, or lack of it, added Roberts. The point for suppliers seems to be that there is no escaping it.