Japanese Industry Facing Huge – Potentially Global — Problems in Wake of Quake, Tsunami

Much of the Japanese auto industry appears to be shut down, in the home market, in the wake of last week’s devastating earthquake and tsunami, and industry managers say they’ll be making decisions on when to get back to work on a day-to-day basis.

At least one Honda worker was killed during last week’s temblor, with numerous other injuries reported.  At least 1,000 already-assembled vehicles are known to have been destroyed by the tsunami.  What is unclear is how much of an impact the situation will have on the global networks operated by manufacturers like Toyota, Honda and Nissan.

“There will be some effects,” warned analyst Jim Hall, of Detroit-based 2952 Analytics.

Part of the problem in assessing the impact of Friday’s natural disaster is the extent of damage to the overall Japanese infrastructure.  Communications have been disrupted in some regions, making it difficult to get a full assessment of the situation at some industry facilities.  Further problematic is the ongoing crisis at a three-reactor Japanese nuclear plant that may be undergoing at least a partial meltdown.

At the least, that and additional damage to the island nation’s electric power grid has already forced the imposition of partial, rolling blackouts across the country to conserve power.

Toyota is one of the Japanese makers that has suspended operations at all of its home plants, including those beyond the disaster zone. But it has reported that Central Motor Corporation Miyagi Plant, which produces the subcompact Yaris, among other vehicles, is located near the center of the disaster area.  That means it could require a substantial effort to place back into operation, given the reports of widespread devastation from the earthquake and tsunami in the Miyagi prefecture, which is north of the quake’s epicenter in Sendai.

Meanwhile, employees at Toyota’s Kanto Auto Works Iwate Plant, which produces the Scion xB and Scion xD, were evacuated to safe areas.

“We are now conducting a detailed survey of each plant to determine the extent of any damage. We are also currently assessing the situation at our suppliers, dealers and the impact on North American import vehicles,” Toyota said in a statement.

The only maker to report a death at one of its facilities was Honda, where a worker was killed when a wall at its Tochigi technical center collapsed.  There were a number of injuries there, as well.

Honda is also trying to survey the scope of the damage to its operations, many of which are located north of Tokyo and in the quake zone itself.  Particularly worrisome are operations producing engines, transmissions and chassis parts in Tochigi.

A bit south of Tochigi, the quake damage is being assessed at the Sayama plant, a key assembly center which produces Honda CR-V, Accord and Fit models, some for U.S. export, as well as Acura RL and TSX models. In addition, Honda said the Ogawa Plant in quake-affected Saitama, produces automobile engines.

A larger problem for Honda may be the disrupted supply of electricity. Tochigi isn’t far from the Fukushima Daiichi nuclear complex, which has been devastated by the quake, leaving large section of Japan without power.  The damage to the nuclear plants appears to have been so extensive the plants will probably have to be de-commissioned and replaced.

Nissan, which also curtailed operations across Japan, said it is unsure when any of its plants will be running again.  “No decision has been made, as we are continuing to assess the damage to our facilities and equipment,” noted marketing and media relations vice president Simon Sproule.  In addition, “We are discussing parts delivery with our suppliers.”

That’s a potentially serious complication, as the typical assembly line relies on several 100 direct, and potentially thousands of indirect, sources for its parts and components.  It’s unclear how many of those suppliers have been impacted by the quake-fueled disaster.  But simply re-establishing communications lines to ensure accurate logistical support will be difficult.

Over the years, Japanese automakers have migrated to a Just-in-Time manufacturing system that has eliminated most parts warehousing, at least at their assembly plants.  So, even plants untouched by the quake could be inoperable for some time.

Complicating matters, the tsunami that was touched off by the record earthquake damaged and possibly destroyed thousands of already-assembled vehicles waiting for shipment.  Nissan, in particular, reported tsunami damage to 1,300 U.S.-bound vehicles at the port of Hitachi, and to another 1,000 vehicles stored at the Miyagi Service Center, near the heart of the devastation.

Japanese automakers traditionally seek to minimize excess capacity, though they also operate extremely flexible assembly lines, which could help them shift production of critical products from damaged factories to plants ready to resume operations.  But the impact to suppliers will determine if and when that could happen.

And the impact will not be limited to just Japanese home facilities.

Since the mid-1980s, makers like Toyota, Honda and Nissan have expanded their international manufacturing base.  So-called “transplants” now produce about half the Japanese-badged vehicles sold in North America.  But at least some of those plants could soon run into what analyst Hall calls, “an availability issue.”

They “may not see it right away,” stressed Hall, depending on what parts are sourced where, “but some assembly plants could feel it relatively soon,” especially if they rely on hard-to-replace components supplied from Japan, such as engines or transmissions.

How soon they would resume operations could take days, even weeks to determine, industry experts caution.

Paul A. Eisenstein contributed to this report.