By Tamiyuki Kihara and Tom Bateman
HIROSHIMA, Japan (Reuters) -When car maker Mazda sneezes, everyone catches a cold, say people in its hometown of Hiroshima in western Japan, but these days, auto parts maker Yuji Yamaguchi fears a deep chill is on the way.
“If Mazda builds fewer cars, our orders will drop,” said Yamaguchi, whose 110-year-old firm, Nanjo Auto Interior, has almost 1,000 employees making door panels and other parts for the automaker, which accounts for more than 90% of its sales.
“The key thing is whether we can remain profitable with lower volumes.”
The economic engine of Hiroshima, a manufacturing hub 800 km (500 miles) southwest of Tokyo, Mazda faces U.S. tariffs of 25% on automobiles, a dispiriting prospect for an electorate already battling inflation and a weak economy.
Japan votes on Sunday in an upper house election that looks set to weaken the grip on power of Prime Minister Shigeru Ishiba, who has failed to win a tariff reprieve from the United States, its closest ally and a crucial trade partner.
“I have no expectations for the Japanese government anymore,” said Yamaguchi, a great-grandson of Mazda founder Jujiro Matsuda. “I’m past frustration and have just resigned myself to things.”
As people in Hiroshima and other auto manufacturing regions, brace for the inevitable fall-out from tariffs, Yamaguchi said he had little hope the government could turn the tide.
President Donald Trump has given no sign of relenting on his tariffs, and has even hinted at raising those against Japan.
Mazda, which saw U.S. sales fall 18.6% in May on the year and by 6.5% in June, is one of the Japanese car makers most exposed to U.S. tariffs.
Imports bring in the bulk of Mazda’s American sales, but the importance of the wider industry for Japan is almost impossible to overstate.
After Japan ceded global leadership in chips and consumer electronics, its auto industry has grown to make up about 28% of the roughly $145 billion worth of goods shipped to the United States last year.
There are more than 68,000 companies in Japan’s auto supply chain, a July survey by research firm Teikoku Data Bank showed, and the JAMA industry group says they employ 5.6 million people, or about 8% of the labour force.
“A supply chain is hard to rebuild once broken,” said Hideki Tsuchikawa, research head at Teikoku Databank’s branch in Hiroshima, which his firm estimates is home to more than 2,000 auto suppliers.
“Automobiles are a core national industry. Government support is essential.”
The tariffs could cost Mazda and other smaller Japanese automakers U.S. market share lost to bigger rivals, said Julie Boote, an autos analyst at Pelham Smithers Associates in London.
Mazda, headquartered in Hiroshima, where it has assembly plants, has so far declined to give a full-year earnings outlook, citing the uncertainty of tariffs.
In a statement, Mazda told Reuters its top priority was to protect suppliers, dealers and employees as it looked to overcome the tariff impact.
It anticipated significant impact in the short term, the company said, adding it was taking all possible steps, such as asking for government countermeasures.
‘NO OVERTIME, NO DRINKING’
It is hard to say whether the uncertainty will further deepen voter anger over time, or how much opposition parties will be able to chip away at Ishiba’s support as they look to tap into voter discontent.
For the auto industry there seems to be no recourse except to return to a well-worn playbook of cost-cutting perfected during Japan’s years of stop-start economic growth.
No overtime means no extra money for drinking, said Koji Sasaki, the 54-year-old owner of a bar in the town of Fuchu close to Mazda’s headquarters, where the automaker’s employees usually form the bulk of customers.
Their numbers have dropped in recent months, with some regulars apologising for making fewer visits, he said.
Drinking in Sasaki’s bar on a recent July evening was company veteran Toshiyuki Shimizu, 45, who said Mazda had already cut back on overtime and business travel for employees.
“We used to bring junior staff along on business trips, but now I often go alone,” said Akira Ichigi, a 32-year-old Mazda colleague, adding that the limits denied junior employees valuable experience acquired on such trips.
Mazda has set up a tariff strategy team that was meeting each week in Hiroshima, said one company insider, speaking on condition of anonymity.
But Mazda faced constraints in finding ways to tackle the tariffs from a labour shortage in the United States, that kept it from boosting capacity at its sole plant there, operated with Toyota, the source added.
Mazda said overtime cuts and a business travel review were part of its drive to cut 100 billion yen in costs. Essential travel continued, but it was evaluating whether accompanying staff were necessary, it said.
The company set up a team to monitor tariffs and was working with suppliers and dealers, it said, adding that key to increasing supply to the U.S. market were its efforts to tackle labour shortages and strengthen the supply chain.
For now, parts supplier Yamaguchi said he was not considering specific steps to counter the tariffs.
“In business, we need to have long-term vision,” Yamaguchi said, likening the moment to the COVID-19 pandemic, when his company posted a loss in 2020 but returned to profit the next year by working to boost efficiency rather than cutting costs.
“If we don’t invest in 2025, we might miss opportunities.”
(Reporting by Tamiyuki Kihara and Tom Bateman; Additional reporting by Norihiko Shirouzu and Maki Shiraki; Editing by Nobuhiro Kubo, David Dolan and Clarence Fernandez)
