TOKYO – The end is finally in sight for Japanese auto makers as they complete repairs of their damaged supply chains and attempt to resume normal operations just three months after a 9.0-magnitude earthquake and tsunami struck and devastated the northeastern coast of Japan.
Forced to shut down their operations for nearly a month after the twin disasters on March 11 damaged production facilities of some 500 suppliers, the nation’s auto makers are operating at more than 80% of pre-quake levels. By September, all will be above 90% and most will be at capacity.
Recovery has come faster than experts expected but major issues remain unresolved. These include overdependence on a few key suppliers of strategic components and materials. Topping the list are microchips. Also on the list: engineering plastics, synthetic rubber and paint, along with the additives and fillers that give them their special properties.
The most troublesome, deep-rooted issue is whether Japanese auto makers should scrap their famed just-in-time supply system and, because the current business environment is unfavorable with the yen at near-record highs, shift even more production outside Japan.
In a new special report, “After the Earthquake: Fixing Japan’s Auto Supply Chain,” Ward’s surveys more than 100 suppliers of everything from microchips and engine controllers to plastic resins and steel to determine the extent of the damage, the pace of recovery and whether the events triggered by the March 11 natural disasters will have any permanent impact on Japan’s automotive supply sector.
The conclusion? There will not be a major overhaul of the supply chain once it is restored. To do so would not be cost-effective, although adjustments surely will be made in the cases where a single supplier or plant has potential to disrupt the entire chain, as happened with Renesas Electronics.
“In the end, electronics was the biggest problem,” Toyota Executive Vice President Takeshi Uchiyamada tells Ward’s. “We may have to produce these in two or three locations.”
Nor will Japanese manufacturers shift their most advanced materials to locations outside the country. More so than automobiles and consumer electronics, some analysts believe these industries hold the key to the nation’s economic future.
As for moving more vehicle production outside Japan, that already is happening. However, the driving force will not be the events of March 11, but rather the continued strength of the yen against the dollar, euro and other major currencies.
Already, Toyota, Honda and Nissan produce most of their global platforms outside Japan. Last year, Nissan shifted March/Micra production to Thailand, Indonesia and China. Then this spring, the auto maker began producing the small car in Mexico.
Mitsubishi, beginning in 2012, will produce its new Global Small car in Thailand, followed by the model’s launch in China in 2013.
The moves by Nissan and Mitsubishi were in direct response to the strong yen. Analysts now are waiting to see what Toyota will do.
The auto maker is committed to keeping a domestic production base of 3 million units. But to do so means it must export more than half that volume. With exchange rates at ¥80:$1 and ¥117:E1, it is virtually impossible to make money on mainstream models such as the Corolla and Vitz.
Ramp-up following the quake has exceeded most expectations. As of June 10:
- 2Toyota boosted production to an estimated 90% of pre-quake levels. By July the auto maker expects to exceed 90%. Toyota’s main seating supplier, Toyota Boshoku, confirms it will operate its 22 Japanese plants, including affiliated plants, at more than 90% of capacity in June and July, then 100% in August.
- Nissan reached 80%-90% of capacity production at the end of May.
- Honda ran at 50% of capacity in May and June, although the auto maker hopes to resume normal operations in July or August. A Honda supplier reports the auto maker’s Japanese plants will reach 90% in August.
- Mazda is expected to run at nearly 90% of capacity from June through September. The auto maker still is experiencing shortages of microcontrollers, steel sheet, brake pads and various resins and paints.
- Mitsubishi hit 80% of capacity in mid-April and currently is above that rate. The auto maker expects to reach pre-earthquake levels in October. It resumed production of the i-MiEV electric car on May 9, two months after the earthquake and tsunami.
- Suzuki reached 70% of capacity in May, but no schedule has been announced yet for June and July. The auto maker resumed 2-shift operations at its main Kosai plant in May. Its Iwata and Sakura factories continue to operate on a single shift.
- Daihatsu is expected to run at 95% of capacity at its Shiga and Oita (Kyushu) minivehicle operations and 70%-80% at its small-car plants in Kyoto and Ikeda for the month of June. The Kyoto plant mainly produces Toyota cars.
Fuji Heavy Industries (Subaru) reached 60%-70% of capacity in early June and expects to boost that to 80% in July-September.
Excerpted from “After the Earthquake: Fixing Japan’s Auto Supply Chain.” Information about purchasing the full Ward’s special report is available at:
Related document: After the Earthquake: Fixing Japan’s Auto Supply Chain
