Earthquake and Tsunami for Japan’s Automotive Industry

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The Japanese auto industry is at a standstill. About five days after the earthquake and tsunami that struck Japan, all factories of the country’s largest automakers, Toyota, Nissan and Honda, were still closed, including those not directly affected. Toyota, the world’s largest automaker, estimates a drop in production of 40,000 vehicles. Honda has announced that it does not plan to restart production until Sunday, and puts its production loss at some 16,000 vehicles.

According to a study by the investment bank Goldman Sachs, cited by Bloomberg, the financial losses could exceed two billion yen (24.6 million dollars) for each day of lost production at Nissan and Honda. For Toyota, the bill could be three times higher.

Factories could restart in the next few days, but probably not for long. Although some factories were not damaged, their supply was interrupted. Nissan CEO Carlos Ghosn said earlier this week that while operations resume soon, “it won’t be for very long because the supplier network ‘is really devastated’.

The problem has been exacerbated by the unique Japanese system of Kanban (literally meaning “label“) employed by the domestic automotive industry. A supply concept invented by Toyota in the late 1950s, the system uses the rate of demand to control the rate of production. The method allows manufacturers to limit their inventory volumes and thus reduce costs.“Japanese automakers face a triple challenge,” says Yann Lacroix, industry expert for France’s leading insurance company Euler Hermès.“They have to resume production despite power outages; obtain the necessary components from their suppliers despite the devastated roads; and somehow export their cars overseas while the east coast ports are closed.”

These problems will soon have repercussions abroad. Japan is the world’s second largest car exporter (after Germany). More than one in ten cars produced in the world come from Japan. In 2010, the export market (including cars and parts) was worth $130 billion. More than eight million vehicles have been built on the archipelago, half of which have been sent to the United States.

“Toyota produces 47% of its cars in Japan, or about four million units, and we export nearly half of them (1.8 million)”, explains Philippe Boursereau, spokesperson for Toyota in Europe. Supply of Toyota’s hybrid Prius, its four-wheeled Rav 4 or the tiny IQ – all made exclusively in Japan – is likely to be seriously affected by disruption to the company’s parts supply chain.

“We have not yet been able to contact all of our suppliers, so we do not know what state they are in,” said Boursereau. According to the automaker, 60% of cars sold in Europe are made in Japan, but “it takes about six weeks for Toyota vehicles to travel from Japan to Europe.” This means that for the next five weeks European dealerships will continue to receive cars (or car parts) that were made before the earthquake and tsunami. Any disruptions in European or US factories would not start to occur until mid-April.

Read the original article in French

Photo – kosabe

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