News Column

Japanese Auto Factories Running at 50% Capacity

April 27, 2011

Yoichiro Kagawa and Hajime Yamagishi

auto

Although all Japanese domestic automobile factories had restarted by the middle of this month after being halted due to the March 11 earthquake, plants are only operating at about 50 percent of their normal output.

Eight major automakers released domestic production reports for March on Monday. Except for Mitsubishi Motors Corp., all reported a more than 50 percent reduction in terms of automobile units on a year-on-year basis. Mitsubishi was down 25.7 percent.

The main cause for the production cuts was parts shortages, the reports said. As the firms' overseas production bases and foreign auto manufacturers have also been affected, global automobile production will likely decline further in April and onward. As automakers are tied to a broad range of industries, production declines could have a major impact on the Japanese economy.

The inventory of an Aichi Prefecture car dealership affiliated with Toyota Motor Corp. has already reached bare bones, with even its showroom emptied out. Now, test-drive cars do double duty as display vehicles.

"We get a lot of customers coming in, but we don't have cars to sell them," one salesperson said.

Domestic automakers were operating factories only intermittently by the end of March because of damage to production bases and parts makers in the Kanto and Tohoku regions from the Great East Japan Earthquake. The situation gradually improved, and all domestic factories were up and running again in April, but production was only about 50 percent of planned.

After the Niigata Prefecture Chuetsu Offshore Earthquake in July 2007, Toyota experienced a shortage of piston rings for engines and stopped production at all its domestic factories. This time, operations were not expected to be back to normal until November or December.

"This is the worst situation we've faced since the war," a source close to Toyota said.

The main cause of the situation is a shortage of parts. According to Toyota, about 500 different parts were lacking at one time. At present, the supply of about 150 items is unstable.

Each automobile needs about 30,000 different parts, each one indispensable. In addition to microcontrollers that regulate the engine and other systems, brake parts and chemical products such as coating materials and paint have been seriously lacking.

The auto industry has been asked to save electricity this summer to deal with an expected power shortage, as have all businesses. Makers of parts and other materials that are trying to recover from the earthquake likely will be forced to reduce production further. Output declines at the automakers' overseas plants also might be extended. Since most parts are transported by ship, shortages abroad will be felt one or two months later than in Japan.

Toyota plans to cut production at its factories in China to 30 percent to 50 percent of normal, while U.S. factories were to have production cut by about 30 percent. Honda Motor Co. and Nissan Motor Co. both cut production further at U.S. and Asian production bases this month.

Sluggishness in the automobile industry, a star of the nation's manufacturing sector, could seriously influence the entire economy.

Sinking auto factory operation rates also push down the production of materials and parts, even if such makers are capable of full-fledged operations.

"If you also count related industries, the auto industry makes up nearly 20 percent of the production volume of the manufacturing sector. So it has a huge impact on the economy," said Hideki Matsumura, an economist at the Japan Research Institute think tank.

The situation also affects the fierce competition for sales overseas. Honda already has told U.S. sales outlets it would change a plan to send Japan-made cars to the United States this year due to a shortage of new cars. Toyota has postponed U.S. sales of new cars.

Domestic carmakers could miss the chance to increase sales in emerging economies, which have been expanding rapidly in recent years. Foreign automobile manufacturers also might turn to makers in other nations for parts if they cannot rely on their Japan procurement routes.

If the parts shortages continue and the yen keeps appreciating, domestic automakers will be forced to transfer production bases to overseas factories in the mid- and long-term, some economists said.



Source: Copyright (c) 2011, The Yomiuri Shimbun


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