Weakened Supply Chain May Halt Production
By AutoObserver Staff March 28, 2011
As the Japanese auto industry struggles to resume production in the wake of the March 11 earthquake and tsunami, the ripple effects are only starting to touch auto manufacturers in the U.S. and elsewhere. Auto manufacturers around the world rely on a supply chain that includes parts from Japan — from transmissions and engine-control units to exhaust-gas sensors and audio-head units, and a whole range of electronics and semiconductors.
The industry outside of Japan has largely managed to continue business as usual, operating on parts and supplies it has in stock. Once the parts bins are empty the shock waves from Japan could force manufacturers globally to slow or halt production if they can’t get components they need. That could play out over several weeks because some parts may still be on ships from Japan or in land transit.
Indeed, research firm IHS Automotive said Thursday a shortage of auto parts could – worst-case – cut global vehicle production by 30 percent within six weeks. That’s 100,000 vehicles per day, noted IHS analyst Michael Robinet, adding it could include North American plant closures. So far, 13 percent of global production has been lost due to parts shortages, Robinet said, and assembly-line slowdowns could grow more severe by the third week of April.
At the moment, most manufacturers say the impact on their U.S. operations has been minimal — so far — and that they don’t know what the ultimate impact will be because the status of the supply chain is so uncertain. A so-called Tier 1 supplier that supplies a complete infotainment system to a vehicle manufacturer, for example, may be up and running, but it depends on dozens of sub-suppliers in Japan that can’t make parts because they lack the raw materials or electricity.
Speaking Of Affected
Even if automakers know their supply chain is badly broken, they may be loath to say so publicly for fear it would scare off customers or tip rivals that they are vulnerable. Though other manufacturers tried to downplay the potential impact on their supply chain, Sweden-based Volvo said March 21 it had only a 10-day supply of Japan-sourced navigation and climate-control systems.
Spokesman Per-Ake Froberg told AutoObserver.com, “I don't think that Volvo differs from any other car manufacturer when it comes to being dependent on components from Japan. We have, however, been open with admitting that the situation in Japan can have a negative influence on our parts supply. “Our production continues undisrupted, and we are confident that it will continue next week. That is the period we can predict. We take (it) one week at a time,” he said in an e-mail message from Sweden. “We get positive signals from Japan. Suppliers are slowly getting access to power, water, and gas. The infrastructure is improving.”
The loss of vehicle and parts production in Japan is creating the greatest havoc with the Big Three Japanese manufacturers — Toyota, Honda and Nissan, which have the largest operations there. Supplies of some popular Japanese-built models, such as the Toyota Prius, Honda Fit and Nissan Murano, are expected to be tight because assembly plants are down or operating sporadically.
Ship Engines to Japan?
Thirty percent of Nissan vehicles sold in the U.S. are built in Japan, including crossovers such as the Rogue, Murano, Juke, and Cube, and most Infiniti models. Production of those models was halted March 12, the day after the earthquake, and Nissan resumed limited production in Japan on March 23. However, the company said production would continue only “while inventory of supplies last,” indicating more disruptions are possible.
Nissan has also resumed producing some repair parts and parts for overseas manufacturing, including North America. Those operations depend on availability of parts from companies that supply Nissan, and could be disrupted again. Further complicating Nissan’s situation is that its Iwaki engine plant in northern Japan — which builds engines for U.S. models such as the Murano, Nissan 370Z and Infiniti G37 — was heavily damaged and could take several weeks to repair.
Nissan said it is considering shipping engines to Japan from its plant in Decherd, Tenn., to fill the void. The Decherd plant makes all the engines for U.S.-built Nissan and Infiniti vehicles. Spokesman Brian Brockman said Nissan’s North American plants will “continue to operate on a normal schedule at least through April 1.” Of course, parts availability could affect production after that.
Nissan dealers had enough vehicles in stock to last 47 days when the earthquake hit. Infiniti dealers had a 49-day supply, not including vehicles en route from Japan. Brockman said, “In the near term we don’t expect our supply will be affected. We’re monitoring the situation on an ongoing basis.”
Brockman said about 1,500 Leaf battery-electric vehicles were in transit from Japan or at U.S. ports, including 600 that left by ship the day before the earthquake, but he didn’t know when more would be coming. Nissan sold 154 Leafs in January and February because supplies were constrained and still plans to significantly increase volume in the spring.
Battery Plant Damaged
Toyota’s situation also looks precarious because 30 percent of the vehicles it sells in the U.S. are made in Japan, including the Prius, Yaris, and all Scion and Lexus models. Japan also supplies 25 percent of the parts of Toyota vehicles made in North America, and several parts plants were damaged, including one that supplies batteries for the hybrid Prius. Toyota halted production in Japan March 14. On March 28, Toyota will resume production in Japan of three hybrid models – the Prius, Lexus HS250h and the Lexus CT200h.
Toyota’s North American plants have suspended overtime and Saturday production to conserve parts from Japan, but plants are otherwise running on regular schedules. Spokesman Mike Goss said North American plants usually have a two- to three-week supply of Japan-made parts in the pipeline, so they are operating on that while the company mulls contingency plans. “Just like everyone else in the auto industry, we are assessing the status of hundreds of suppliers and sub-suppliers in Japan. This includes assessments of their buildings, equipment, manpower, infrastructure issues,” Goss said.
Made In North America
Honda reports its North American operations continue to run normally. Honda’s two vehicle-assembly plants and several parts plants will remain closed in Japan until at least March 27.
One Japan assembly plant makes the Honda Fit and Insight, CR-Z and Civic hybrids, and the other makes the Acura RL and TSX and some Honda CR-Vs for the U.S. Honda has suspended orders for those models from U.S. dealers, but the company said it has “adequate inventory” of those vehicles.
“There has been no impact to date in North America,” spokesman Jeffrey Smith said. “The situation in Japan is really fluid. After March 27 we will announce decisions based on the status of the situation then.”
Honda appears less vulnerable here to the turmoil in Japan than some manufacturers because 80 percent of the vehicles its sells in the U.S. are made in North America, as are “the vast majority of parts,” Smith said. However, Honda plants here still rely on some Japanese-made parts, and interruption of the supply from Japan could eventually curtail North American production.
Domestic Parts Monitoring
While Japan-based automakers wrestle with crippled production capability at home, domestic manufacturers say the impact on them has been minimal so far. General Motors on March 18 idled the Shreveport, La., plant, which builds the Chevrolet Colorado and GMC Canyon pickup trucks, putting nearly 1,000 workers on temporary layoff. GM also closed an assembly line at a Tonawanda, N.Y., plant that supplies engines to Shreveport, affecting 59 workers. Otherwise, GM said North American operations are running normally. GM said production was halted because it lacked unspecified parts from Japan, though some analysts think GM merely diverted parts to plants that build better-selling vehicles.
Ford has not experienced any production disruptions and production of North American–made hybrid models has continued even though the battery cells for the hybrid systems come from a Sanyo plant in Japan. The plant is in southern Japan, far from the northern areas hit by the earthquake and tsunami.
On March 24, however, Ford sent an email to dealers telling them of cutbacks in production of certain colors of vehicles as the Japan crisis had disrupted its supply of certain pigments used in its paints. Those scale backs are for Tuxedo Black offered on the Ford F-150, Super Duty, Expedition, Taurus and Explorer as well as the Lincoln Navigator and MKS models. Certain shades of red – Royal Red, Red Candy and Red Fire – offered on the Focus, Econoline, Ranger – will be restricted as well.
“We’ve been fortunate that we have not run out of parts. It hasn’t come to the point where we can’t build (hybrid) vehicles,” spokesman Todd Nissen said, adding North American production in general has seen little impact. Some Ford plants may have slowed production to conserve parts, Nissen said, though he couldn’t give specifics. “We have not had any parts-supply disruptions so far, but given the nature of the situation over there, things could change overnight.”
Only 1 percent of Chrysler’s Tier 1 components (such as engines, transmissions, electronic control units) come from Japan, and spokeswoman Katie Hepler said, “We have not experienced any production disruptions. We’re very closely monitoring the situation with our suppliers, as well as infrastructure problems in Japan. This is something we’ll be monitoring for weeks.”
Pacific Rim Adjusting
Other manufacturers said they are awaiting word concerning parts made in Japan. Subaru parent Fuji Heavy Industries has pushed forward its plans to resume plant production from this week to March 28. Subaru has cancelled overtime at its Lafayette, Ind., plant that makes the Outback, Legacy, and Tribeca, but has not otherwise curtailed production. Spokesman Michael McHale said Subaru vehicles built there use “a few critical parts” made in Japan, including rear differentials. “We have enough parts in the pipeline to keep us going for a while, but it’s impossible to say how long,” McHale said. “They’re still assessing the situation in Japan, and it’s really difficult to get the full picture. They’ve never dealt with this type of situation before.”
Mazda’s supply chain for the Mazda6 sedan stretches from Japan to Flat Rock, Mich., outside Detroit, where U.S. versions are assembled at a plant Mazda shares with Ford. About 30 percent of the parts for the Mazda6 come from Japan, including the automatic and manual transmissions. They are built by Aisin Seiki Co., which has closed 11 of its plants until at least March 25. Spokesman Jeremy Barnes said production has continued unabated at Flat Rock, but “I can’t tell you how much longer I will be able to say that,” Barnes added.
The Mitsubishi plant in Normal, Ill., that builds the Galant, Eclipse, and Endeavor uses engines and transmissions made in Japan, but spokesman Dan Irvin said the Japanese plants that build those components, and the ports from which they are shipped, are in southern Japan and weren’t damaged by the quake. Production has not changed at the Illinois plant, and Irvin said Mitsubishi has an adequate supply of vehicles. Mitsubishi’s three plants in Japan will be back at full production on March 28.
Korea-based Hyundai receives less than 1 percent of its parts from Japan, Hyundai Motor America spokesman Christopher Hosford said, and the plants that produce those parts are not in areas damaged by the earthquake. “There has been no significant impact on production and we don’t expect any in the immediate future,” Hosford said, adding vehicle production has not changed at Hyundai plants in Korea or the U.S. Kia, which is part of the Hyundai Group, also said neither its Korean nor its U.S. plants have been affected.
Suzuki’s headquarters and most of its plants are in southern Japan and were not directly affected by the earthquake. Suzuki plants were idled for several days after March 11 because suppliers were shut down or unable to ship parts. Some plants have resume production; others have not. All of Suzuki’s U.S. models are made in Japan. “We’re OK from an inventory standpoint,” U.S. spokesman Jeff Holland said, and any interruption in the supply of vehicles from Japan would not be felt until a couple of months from now.
Europeans Continue Production
BMW’s Spartanburg, S.C., plant (above) has continued to operate at regular production, but spokesman Kenn Sparks said the plant depends on unspecified electronic components from Japan, and BMW doesn’t know whether those parts will be available when the current supply runs out. “As with everyone else in the auto industry, the full effect of the situation is not known or even certain at this point. The situation is constantly changing in Japan,” Sparks said. “In a few days we might have a much clearer picture of the situation. We are holding ongoing meetings to assess the situation, and there is a lot of figuring out going on right now.”
Europe-based Mercedes-Benz, Volkswagen and Jaguar Land Rover reported their production has not been affected. VW said it assembled a task force after the earthquake that monitors the situation daily to manage its supply chain across the company’s brands, which include Audi and Bentley.
In Europe, automakers, including Volkswagen PSA Peugeot Citroen, may be forced to stop production because of a shortage of parts from Japan. Lars Holmqvist, head of a European group that represents more than 3,000 companies, said carmakers will feel the pinch in the next few weeks in the supply of semiconductor and infotainments systems. Already, Peugeot and General Motors’ Opel cut back production due to shortages of electronics components and diesel engine parts.
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