Japanese automakers are increasingly looking to South Korean companies for components to reduce production costs of their low-priced vehicles, dealing a further blow to Japanese parts makers.
Although the Japanese parts manufacturers have long been praised for their high-quality products, their South Korean rivals are catching up.
And the weak won against the yen has apparently prompted the Japanese automakers to favor the South Korean companies.
Japanese automakers are under pressure to reduce costs as they focus on manufacturing minicars and other inexpensive models for consumers in emerging economies.
"The proximity to South Korea means that shipping costs (for the parts) will be low," said an official at Mitsubishi Motors Corp. "Besides, the quality has improved."
Mitsubishi plans to procure about 160 billion yen ($1.95 billion) worth of parts this fiscal year from South Korean and other foreign makers, up considerably from 110 billion yen in fiscal 2009.
The increase means that about 20 percent of Mitsubishi Motors' costs for supplies will go toward foreign-made parts.
At a "reverse" trade fair organized by the Korea Trade-Investment Promotion Agency (KOTRA) in mid-December in Seoul, Mitsubishi set up a booth to display more than 70 types of parts, including headlights and engine radiators, that it is considering procuring in South Korea.
Mitsubishi officials negotiated with top officials from about 50 South Korean parts makers at the fair.
"We are confident about our quality, and with the yen's appreciation against the won, we believe that we can offer competitive prices," one parts maker said.
Nissan Motor Co. is also looking to expand its procurement of parts from overseas, including South Korea.
"We hope to improve the competitiveness of our domestic plants by using low-cost parts from East Asia," said Nissan Chief Operating Officer Toshiyuki Shiga.
Nissan is already planning to increase auto production in Kyushu, which is close to the Korean Peninsula.
It has also jointly procured South Korean parts with its partner, Renault SA, whose group company Renault Samsung Motors is based in South Korea.
Daihatsu Motor Co., the largest manufacturer of minicars, has started dealing with parts makers in South Korea and China to stay afloat amid the fierce price competition.
Daihatsu plans to set up a subsidiary in Shanghai in April that will be tasked with collecting information on parts makers in Asia and cultivating new suppliers.
Japanese auto parts makers, struggling against the strong yen, have increasingly shifted production overseas, following in the footsteps of their main Japanese clients.
But the relatively high costs of procuring Japanese-made parts remain an obstacle.
One Japanese auto parts company recently warned an equipment supplier in the Kanto region that it would place orders overseas unless the supplier cut its prices by 20 percent.
For the South Korean side, the trend is a blessing.
"Being recognized by Japanese manufacturers, who are particular about quality, will mean that our parts will be accepted anywhere in the world," said an official at a South Korean parts maker.
With the Hyundai Motors Group's rise to fifth-largest automaker in the world, Korean parts makers that supply the auto giant have also improved their wares.
Although South Korean auto parts exports to Japanese makers account for only about 3 percent of the total, KOTRA has been aggressively campaigning to promote their products since last year.
Its promotional efforts, including visits to automakers in Japan, sparked Mitsubishi's interest in the South Korean companies.
More than 30 parts makers visited Mitsubishi's plants in Aichi Prefecture.
