Short-Term Outlook Grim For Japanese Automakers

Japanese auto manufacturers closed down their factories in the days after the earthquake and tsunami disaster and nuclear power plant failures, but even if big factory production is restored, with roads and ports crippled the delicate “just-in-time” supply system might shudder to a halt in the months ahead.

Japanese semiconductor output has also been endangered.

Nissan-Renault CEO Carlos Ghosn said its supplier network had been devastated.

As Japanese manufacturers faced financially threatening uncertainty, competitors in places like Korea were gearing up to steal their business.

The BBC reported that many big Japanese manufacturers like Toyota, Nissan and Honda were shutting down their factories for a week because electricity was in short supply as nuclear power plants were shut down. These companies recognized that Japanese citizens’ basic energy needs were paramount in the short term, according to BBC reports.

IHS Automotive agreed that most big plants would stay closed this week, and wondered how the supply chain would be affected.

“Production shutdowns are expected to continue at least this week. Even those automakers whose plants are least affected will find it difficult to resume production in the absence of component supplies and adequate power,” said IHS Automotive analyst Paul Newton.

IHS Automotive published a run-down of the state of play at major plants on March 15.

• Toyota – suspended all Japanese output until March 16, losing 40,000 vehicles.
• Nissan – closed Tochigi and Iwaki plants until March 18, and four plants near Tokyo and the Fukuoka region until March 16.
• Honda – all output ceased until March 20 – losing 16,000 vehicles. Honda has about 113 suppliers in the earthquake and tsunami area.
• Suzuki – production suspended until March 16.
• Mazda – suspended shifts at Hiroshima and Hofu until March 16.
• Fuji Heavy – stopped Subaru output at Gumma until March 16.
• Mitsubishi – suspended production at Aichi, Gifu and Okayama until March 16

Korean newspaper Chosun Libo reported that industry there would feel the impact of the Japanese shutdown because Korean manufacturers relied on Japanese parts, and Korean electronics firms were dependent on Japanese components.

“But some sectors may benefit. The domestic electronics, semiconductor and auto industries may be able to take some of the global market from their Japanese competitors or take a break from fierce competition for the time being,” the newspaper reported.

The newspaper said Renault Samsung depended on Nissan for six-cylinder engines, and some parts for four-cylinder motors. GM Korea imported transmitters for the Chevrolet Spark.

“But the Hyundai-Kia Automotive Group is likely to suffer very little damage and may even benefit in the global market now that Japanese carmakers including Toyota halted production,” the newspaper quoted the Hyundai Securities Center saying.

Deutsche Bank picked up the idea that Japanese electronic parts production might be hurt the most.

“One area of growing concern is the supply of automotive  semiconductors. Auto industry purchasing executives had already expressed concern about tight supply of Auto Semis even prior to the disaster. Electricity outages and seismic activity are both highly disruptive to Semi fabrication; even millisecond outages or small tremblers can result in the scrapping of weeks of in-process production. Inventories of Automotive Semis were unusually low ahead of the Japan disaster, resulting in heightened concern from purchasing execs around the world,” Deutsche Bank said in its Global Autos Daily report.

IHS Automotive’s Newton said Japan’s just-in-time supplier system was vulnerable, and resumption depended on the extent of earthquake and tsunami damage, their own raw material suppliers and power shortages.

“We cannot complete a car, even if one or two parts are missing, so it’s better that we stop production altogether,” said Honda spokesman Keitaro Yamamoto.

Gloomy Ghosn
Renault-Nissan CEO Carlos Ghosn was interviewed on Japanese TV, according to IHS, and made some gloomy comments.

“Our best hope is that we start to produce again in two or three days, but not for very long as our supplier network has really been devastated,” Ghosn said.

IHS said the implications for the Japanese industry are not good.

“The production shutdowns, if extended for long, could hit Japanese automakers vehicle sales in international markets significantly. Japanese automakers have traditionally used domestic production capacity to meet overseas vehicle demand. Although some automakers have invested in capacity expansions in international markets over the last two decades, others still depend to a great extent on exports from Japan to meet overseas demand. Even if the Japanese automakers can resume domestic operations, exports of vehicles are expected to take some time, considering the damage to port and road infrastructure,” IHS’s Newton said.

Neil Winton – March 15, 2011