Japanese carmakers slow production after quake

Car production in Japan will be severely curtailed on Friday as carmakers close factories to deal with a shortage of key parts due to the earthquake in north-western Japan.

Toyota, Honda, Nissan and others will halt production in Japan due to damage caused at Riken, a piston ring and seal ring manufacturer, by Monday’s earthquake in Niigata.

The production setback, which highlights the low level of inventories Japanese automakers keep, could cost the industry about 65,000 units in production and Y100bn in revenue, according to Kurt Sanger, auto industry analyst at Macquarie Securities in Tokyo.

Toyota, which stopped production at all of its 12 domestic factories for half a day on Thursday and will continue to keep production on hold on Friday, has sent 330 group staff to help Riken deal with the emergency.

In addition to its 12 domestic plants, 3 manufacturing subsidiaries and 7 affilitates making Toyota vehicles on an OEM basis will also halt production, leading to a cut-back of 26,000 units.

Honda is suspending production at its Suzuka plant on Friday, resulting in a production decline of 2,000 units.

Four Nissan factories and that of an affiliate would also stop production on Friday.

Riken on Thursday said it would resume limited production on Monday.

The production halt highlights the risks Japanese carmakers face as a result of their policy of “just-in-time” production, keeping parts inventories low.

Toyota, which appears to be most seriously affected, was forced to shut production down temporarily after a serious earthquake in Kobe in 1995, and again after a fire at a key supplier in 1997. Honda also halted production after an earthquake in Niigata in 2004.

Analysts said the damage caused by Monday’s earthquake was likely to be limited.

“If it is confined to just a couple of days, they will offset it with a Saturday here and an extended shift there,” said Mr Sanger.

Since August is a relatively slow period for auto production it would not be difficult for the carmakers to make up for lost production, he said.

The damage caused to auto production by a temporary crisis was unlikely to affect the carmakers’ policy of keeping inventories low, analysts said.

“The cost of keeping inventory is higher than the cost of dealing with a (temporary) disaster,” says Junichi Yamaki, auto analyst at Moody’s in Tokyo.

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