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Japanese carmakers continue to suffer from aftermath of disaster

The shortage of key auto components in the wake of the devastating March 11 earthquake and tsunami in Japan has caused huge disruption for Japan’s auto makers, while damage to a major nuclear plant led to significant electricity supply disruption, leading to power rationing and part-time working.

Plants were closed for several weeks, costing the Big Three – Toyota, Honda and Nissan – some $1.4 billion a week.

Output for the Big Three fell by two-thirds in Japan in March. And while production has now restarted, the Big Three are still running at 50% capacity in Japan as supply-chain and energy problems persist.

Last week Honda, Japan’s third-biggest carmaker, said that production would not return to normal until the end of the year, echoing similar comments by Toyota.

As a result, the supply of critical components from Japan in electronics, microprocessors, sensors, clutch packs, gearboxes and key engine parts, has now radiated throughout the world. Japanese assembly plants – including here in the UK - have had to scale back production as they try to eke out their remaining components.

Longer term the crisis should force producers – especially the Japanese assemblers – to look again at their supply chains and to ‘second source’ more key components from outside of Japan.

For the limited car assembly that still takes place firms will focus on the most popular variants of the most popular models, so as to maximise the profit earned on each car.

That will mean less choice for consumers, and
fewer discounts.

And the shortage of key components is affecting other producers as well.

Ford had to temporarily idle plants in Europe and the US, as has GM.

A shortage of paint pigments made only by Merck in Japan means that certain colours may not be available.

It seems you can have any colour you want as long as it isn’t black.

As a result of the disruption, Toyota is almost certain to lose its number one position by sales in the global auto industry, a spot it took in 2008 when it overtook GM.

This year analysts expect Toyota sales anywhere between 6 and 6.7 million, well below its target of 7.7 million.

With GM on track for 8 million-plus cars and VW some seven million, Toyota may well drop to third place in the global rankings.

And both Toyota and Nissan seem poised to announce losses for the first six months of 2011 in the wake of the crisis.

> David Bailey is professor of international business strategy and economics at Coventry University Business School


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