Japan Quake Impact on Global industry Hard To Fathom

News about the possible impact of the Japanese earthquake, tsunami and nuclear power plant disaster on the global automotive industry is confused and contradictory.

Nissan Motor’s Chief Operating Officer Toshiyuki Shiga said towards the end of March that that his company expected to resume full production in a matter of weeks, not months.

At the same time, IHS Automotive, the U.S. based consultancy, said global automakers may lose production of 600,000 vehicles by the end of March, and shutdowns would gather pace because of component shortages.

“The next surge of shutdowns comes when the pipeline of parts that were already built dries up,” IHS Automotive vice-president Michael Robinet said in an interview from Lexington, Massachusetts.

At the same time, Reuters reported from Tokyo that lost auto and truck output since the disaster struck on March 11 exceeded a third of a million vehicles and it could be months, rather than weeks before Japan’s auto manufacturers get back on track.

Nissan’s Shiga, who is also chairman of the Japan Automobile Manufacturers Association, was hopeful and upbeat about his own companies prospects, which are unlikely to be markedly different from the other two Japanese giants Toyota and Honda.

“Recovery efforts are progressing much more quickly than we had anticipated. It is too soon to say exactly when production will recover 100 per cent, but we expect it to be a matter of weeks, not months,” Shiga told the Wall Street Journal.

Shiga reckoned that the Japanese industry should be able to get a full reading on the state of second and third tier suppliers by mid-April. Nissan has been able to trace back its supply chain and find out the damage at all but a handful of suppliers, down from upwards of 50 a week ago.

Rotating power
Meanwhile, another threat to production emerged as questions mounted over power supplies, with industry considering rotating production between automotive and electronics companies, reducing overall use of power in exchange for a minimal but steady supply, or alternating production downtime between individual manufacturers. With capacity cut by the nuclear disaster at Fukushima, the shortage is likely to worsen as more factories come on line after recovering the earthquake, and as air conditioning needs rise in the general population with the approach of summer.

In Europe, shortages of components have begun to disrupt production. Peugeot Citroen has slowed production at seven plants in France and Spain because it can’t get enough diesel engine sensors from Hitachi’s earthquake damaged plant. Porsche could run out of engine airflow sensors next week. Jaguar has slowed production of the XF because of a shortage of LCD “infotainment” screens. Opel cancelled shifts in Spain and Germany building Corsas and Merivas because of electronic shortages. VW, BMW Mercedes and Ford also have reported slowdowns in production. Germany’s Merck has curtailed some supplies of red and black paint because of trouble getting supplies from its pigment supplier in Japan.

Renesas
One component supplier that was causing great concern was Renesas Electronics Corp, which according to Deutsche Bank provided just under 20 per cent of the global industry’s micro control units. This production would not be easily replaced, according to the bank, and could take up to nine months to restart, impacting between 7.5 and 11 million vehicles.

Later, Renesas Electronics said it would resume manufacturing microcontrollers used in engines, transmissions and telematics at its Naka factory by July.

Experts also fear that smaller Japanese firms which contribute to the important and delicate “just-in-time” supply system serving local and global automotive industry manufacturers, might be in trouble and disrupt European industry in the months ahead.

“Even a missing $5 part can stop an assembly line,” said Morgan Stanley auto analyst Stuart Pearson, in a report “Japan Earthquake: Implications for E.U. Autos”.

London-based Citigroup Global Markets said any disruption from second and third tier smaller Japanese companies which supply small amounts of important electronics is a worry because delays won’t become apparent to European based manufacturers for more than a month.

“Any relevant components dispatched before the earthquake are likely to be currently seaborne, so there is likely to be 5-6 weeks of logistics in the system. This means that any disruption to vehicle production outside of Japan is unlikely to occur until the second quarter and beyond,” Citigroup said in a report.

Faster air freight
Citigroup said this problem, if it exists, could be overcome by using more expensive and faster air freight for a short time to make sure production runs smoothly.

Meanwhile U.S. ratings agency Standard & Poors attempted to take a long-term view of the crisis, and came up with a positive view.

“No (big) Japanese automakers or auto suppliers suffered serious damage, such as the loss of main factories, following catastrophic earthquake and tsunami that hit northeastern Japan on March 11, 2011,” S&P said.

The agency did say that full production might not return until at least early April because of key component shortages, but that everything would return to normal soon.

“”The suspension of production (is) temporary and  most Japanese automakers and first tier suppliers should be able to absorb the decline in production volume by lifting output in the latter half of 2011,” S&P said.

Neil Winton – March 27, 2011