Japan car makers seek parts suppliers after quake

TOKYO – Japan's major automakers are trying to find alternative parts suppliers to replace those knocked out of action by the colossal earthquake last week that has forced most of the country's car production to a halt.

Analysts say production is likely to resume within the next few weeks, bouncing back from the Mar. 11 quake and tsunami which killed more than 6,000 people. Once parts are coming, automakers will be able to make up for much of the lost production in coming months, they say.

What's likely to hurt in the longer run are logistical difficulties caused by destroyed roads, and limits on electricity use. Power stations have suffered damage including several nuclear power reactors that are beyond recovery — and leaking radiation in a still unfolding crisis. The yen's recent surge to record highs could also hamper automakers.

Toyota Motor Corp., maker of the Prius hybrid and Lexus luxury models, has stopped production at auto assembly plants throughout Japan through next Tuesday.

Among Japan's automakers, it will likely be least affected because most of its suppliers are located near the company's Nagoya headquarters, southwest of Tokyo, which is far from the disaster's epicenter in the northeast.

Honda Motor Co. said its production halt at auto assembly plants in Japan will be extended by three days until March 23.

Earlier this week, Nissan Motor Co. and Mitsubishi Motors Corp. restarted some plants using their stocks of parts, which will continue only as long as inventory lasts.

"It's all guesswork," Koji Endo, analyst with Advanced Research Japan, said of the potential damage.

Automakers are scrambling to find other suppliers, including overseas ones, to replace those disabled by the 9.0-magnitude quake, he said.

Northeastern Japan is home mostly to tertiary parts-makers — the tiny machine shops that make parts for secondary and other suppliers. Parts-makers higher up in the supply chain will be able to make those parts instead, Endo said.

He estimates the loss for Toyota at about 6.5 billion yen ($81 million) or 13,000 vehicles at day, but Toyota can make up for that by boosting production later on.

Goldman Sachs said in a report this week that the damage to automakers will be short term, and parts-makers have recovered quickly from previous earthquakes.

Nissan's engine plant in northeastern Japan suffered damage, and a transmission plant was damaged from another quake Tuesday in Shizuoka, southwest of Tokyo.

That could prove more serious as suppliers for engines and transmissions are harder to replace. Spokesman Mitsuru Yonekawa said damage was being assessed and it was unclear when production will resume.

Nissan said Friday that checks began this week for traces of radioactive material in vehicles to avoid spreading contamination.

Fears about radiation leaks have been growing because of the crisis at the Fukushima Dai-ichi nuclear power plant, which is spreading low levels of radiation in northeastern Japan, forcing nearby areas to be evacuated amid efforts to cool overheating nuclear reactors.

Toyota said it may decide next week's plans by later Friday. It began production for repair and replacement parts Thursday, and plans to start production of parts for overseas production, including knockdown car assembly, Monday.

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Japanese car makers face struggle as earthquake hits suppliers

With 70,000 workmates based in Japan, the Union flag is also flying at half-mast at the Burnaston factory.

All staff in Toyota's 12 Japanese plants have been safely accounted for, but Honda has not been as fortunate. A worker died at one of its research and development facilities north of Tokyo after the roof a caved in, while 30 staff were also injured. At Nissan, the third of Japan's major automotive manufacturers, a factory 60km from the nuclear power plant at Fukushima has been damaged by fire.

The devastation has caused immense human cost across Japan. Over the next few days and weeks, it also threatens to see parts of the global automotive industry shudder to a halt.

Nissan restarted production at two of its Japanese plants yesterday, but work at all other major automotive factories is suspended until the weekend at least. This decision has already accounted for roughly 250,000 new cars, the equivalent of one-and-a-half months' of all new car sales in the UK.

At present, the car makers claim they can limit disruption from these stoppages thanks to their large inventories. In the UK, for example, where 33pc of all Toyotas sold are imported from Japan, Toyota says it has six weeks' supply of new vehicles. Nissan should also overcome any delay to sales of its new electric car, the Leaf, because it shipped the first 350 to the UK before the earthquake struck.

However, damage to the supply chain and Japan's infrastructure could cause a more lasting impact. The chief executive of Nissan, Carlos Ghosn, said its supply base had been "devastated" by the earthquake. "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," he added.

Most of the Japanese car makers are based south of Tokyo. However, Honda says it has about 113 suppliers based in the northeast area of Japan most affected by the earthquake and tsunami.

However, it is not just plants in Japan that could suffer the effects of the disaster. Nissan's Sunderland plant is the biggest in the UK and it sources 15pc-20pc of parts for its vehicles from Japan. Nor is it limited to Japanese car makers. According to one leading European manufacturer, there are 150 separate automotive suppliers in northeast Japan, many of which it uses.

Car makers have stockpiles of parts that will support production for up to six weeks. However, there appears to be a real threat of further delays to production among suppliers. Leading companies such as Bosch, transmission systems supplier Jatco, and ball bearings group NSK have either withdrawn workers from Japan or suspended production. Nissan says it has suppliers in the nuclear exclusion zone.

Evolution Time Critical provides emergency logistics to the automotive sector and says car manufacturers are "still trying to establish" the size of the potential issues in their supply chain, from tier one suppliers to raw material providers. According to Brad Brennan, managing director, roads and rail networks in northeast Japan have been destroyed by the tsunami, making it difficult to pick up and deliver components, while electricity blackouts will limit factory outputs and communication.

And even if components make it to the coast, exporting parts out of the country will be restricted by damage to ports – the tsunami swept away 2,300 Nissan and Infiniti vehicles waiting for shipment at Nissan's exporting facility at the port of Hitachi – and priority is being given to disaster relief efforts.

Paul Newton, automotive analyst at Global Insight, said: "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."

An alternative for the car makers is to source components from other locations. A spokesman for Honda said yesterday that, although 80pc of its tier-one suppliers are ready to start production, it is prepared to use components made in the US. Other options are Taiwan and South Korea.

However, Japan has gained a reputation for quality manufacturing and is the only supplier of some parts, especially for electric cars. As car makers in the country ramp up production after the disaster, they may find they have nowhere else to go. Stephen Taylor, managing director at consultants AlixPartners, said: "There are many semiconductor-parts manufacturers in the Northern Japan area. For example, the mountain area Nagano is known to have many precision manufacturers. If there is only one plant making something, some parts will be very hard to get back up for."

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