IHS Automotive analyst Paul Newton has offered his take on the fast-moving situation that has seen component and power supply shortages across Japan as the effects of last week’s earthquake continue to be felt.
The major Japanese automakers have extended production shutdowns at their domestic facilities, announced on 14 March, in order to cope with the crisis that has resulted from the earthquake and subsequent tsunami that hit the north-western part of the country.
Last week’s earthquake and tsunami have resulted in the loss of several thousand lives and crippled the entire Japanese economy. As a result, the local automotive industry is facing acute and unprecedented problems relating to component and power supply shortages.
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.
Japanese automakers have extended production shutdowns at their domestic plants until 16 March at least, amid the ongoing shortages of components and disruptions to the power supply. By the end of 14 March, the major automakers had already updated their production plans for the week, with most extending production suspensions for another couple of days.
Toyota has suspended production at all of its domestic facilities until 16 March. According to the company, the three-day production shutdown will result in a production loss of 40,000 units.
Nissan disclosed in a press release its plans to suspend production at the Tochigi plant and Iwaki plant until 18 March and another four plants located near the Tokyo area and Fukuoka region in southern Japan until 16 March.
Honda has announced a production suspension at its domestic facilities until 20 March. This is expected to result in a production loss of 16,000 vehicles. The company has about 113 suppliers based in the area affected by the earthquake and tsunami, of which it has yet to get in touch with more than 40.
Suzuki has also decided to extend its production suspension until 16 March, after which it will reassess the situation and the potential for resumption of manufacturing operations. The small-car manufacturer will not accept component deliveries so that its suppliers can first ensure the safety of their employees.
Mazda, which has a major manufacturing presence in the far west of Japan, suspended the night shift on 14 March at its two assembly plants in Hiroshima and Hofu until 16 March. The automaker is expecting a shortage of components such as steel plates and brake parts. The company has advised its employees to stay at home during these days.
Fuji Heavy, the manufacturer of Subaru-brand vehicles, has extended its 14 March shutdown of vehicle production at its plants in Gunma Prefecture to 16 March. The company disclosed that it has suffered some minor damage to buildings and production equipment, but it has no major problems with its operations.
Mitsubishi has suspended production operations at plants located in Aichi, Gifu, and Okayama prefectures until 16 March. The company has said that none of the three facilities was damaged by the earthquake and tsunami. However, it has announced the production shutdown in order to determine the extent of the damage at its suppliers located in the affected areas.
The manufacturer also said it has secured sufficient components to resume production on 16 March. However, its production plans beyond that date will have to be reassessed.
Meanwhile, commercial vehicle manufacturers have joined the production shutdowns in Japan. Mitsubishi Fuso has announced the suspension of production at its domestic facilities from 15 March through to 21 March in order to ensure the safety of its employees. The temporary shutdown is expected to provide its suppliers with sufficient time to resume the supply of components at its assembly plants.
Isuzu has decided to suspend vehicle production at its facilities in Japan throughout the week. Hino, the truck business of Toyota, has also suspended manufacturing operations at its domestic facilities, as part of a move announced by the parent automaker.
Outlook and implications
Japanese automakers have extended their production shutdowns amid growing concern about the ability of suppliers to resume component supplies. Most of the automakers in Japan follow the just-in-time/sequence process for deliveries of components, systems, and modules.
This results in the regular flow of components from suppliers’ factories to the assembly plants of automakers according to the latter’s production schedules. It saves automakers from building up unnecessary inventory and other associated costs.
However, last week’s earthquake and tsunami has severely affected suppliers’ facilities, thus disrupting the supply chain. Therefore, unless suppliers resume delivery of the components, the automakers are not in a position to restart assembly operations.
But the suppliers’ ability to resume production in turn depends on several factors, including the extent of the damage to their plants caused by the earthquake and tsunami and also on their own tier-two or raw material suppliers.
Many automakers are still tracking their suppliers. Honda has disclosed that at least 113 of its suppliers are located in the affected areas and that it has yet to get in touch with more than 40 of them. Company spokesperson Keitaro Yamamoto said: “We cannot complete a car, even if one or two parts are missing…so it’s better that we stop production altogether.”
Nissan is also not particularly optimistic of resuming production soon unless the supply of components resumes. CEO Carlos Ghosn, accepted its supplier network in Japan is “devastated”. He said in an interview with a TV channel: “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.”
Even those automakers whose facilities are located in areas that were not affected by the earthquake and tsunami are finding it difficult to resume operations owing to the disruption to the supply network.
In addition to the supply chain interruption, Japanese automakers have extended production shutdowns in order to deal with power shortages. Power supply has been severely affected in Japan owing to the damage at power station facilities, including the nuclear plants located on the north-east coast.
Power supply from these nuclear plants was affected after explosions at three reactors at a power plant in Fukushima Daiichi. Rolling power blackouts have been implemented in the Tokyo area by local utility company, Tokyo Electric Power Company. The shutdowns have severely affected transport in the country, including train services, thus making it difficult for employees to report to work.
The production shutdowns, if extended for long, could hit Japanese automakers’ vehicles 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 from Japan are expected to take some time, considering the damage caused by the earthquake and tsunami to the port and road infrastructure in the country.
For example, Nissan’s exporting facility at the port of Hitachi was badly affected after the tsunami swept away some 2,300 Nissan and Infiniti vehicles waiting for shipment.
Ports along the coast have been affected by the tsunami and shipping has been disrupted as priority is being given to disaster relief efforts.
Internally within the country, road and rail lines have been destroyed throughout the regions north of Tokyo, so even if ports operate normally, the ability to transport goods overland is severely compromised and is likely to remain so for some time.