Japan’s recovery offers opportunities for auto parts

Japanese automakers will be evaluating their global supply chains following the March 11 earthquake, tsunami and nuclear plant disasters, which will impact Canadian auto parts suppliers.

March 24, 2011   by PLANT STAFF

TORONTO: The 8.9-magnitude earthquake, tsunami and damage to the Fukushima Dai-Ichi nuclear plant in Japan will likely have an impact on how automakers there deal with sourcing and global integration, according to a report by AutomotiveCompass LLC. In the meantime, there are limited opportunities for Canadian auto parts suppliers as the Japanese OEMs sort themselves out following the March 11 disaster.

The AutoCRM Japan Crisis Update prepared by AutomotiveCompass, a West Chester, Pa. global automotive research and consulting firm, catalogues the production disruptions among the Japanese OEMs worldwide, and highlights the minuses related to current supply chain thinking.

In its assessment, the report notes shortages of key materials, electronic components and systems “show the downside of scale effects, restricted sourcing (Japan exclusivity) and global integration.”

While the full depth of this downside isn’t clear at this point, the report suggests tough decisions lie ahead about evolving global integration and supply substitution. “Over time, less reliance on Japan is likely, based on its key vulnerabilities and the need to manage risk from a global context.”

In North America, Toyota Motor Co. has suspended daily and Saturday overtime at all plants this week to conserve available parts, and the company has warned all its US, Canadian and Mexican plants that full production shutdowns are a possibility.

In Canada, Honda Motor Co. Ltd. has suspended overtime shift production of the Civic at its Alliston 1 plant in Alliston, Ont. to conserve parts, and of several models at its Lincoln, Ala. assembly plant.

The report notes the potential risk of delayed production starts, including Toyota’s Prius V wagon at the Tsutsumi plant in Japan and a Corolla from the new Ohira plant. The Honda Civic made at Alliston 1 and 2 is also mentioned, “although Honda officially anticipates no Japan-related supply chain delays.”

The Automotive Parts Manufacturers’ Association (APMA) doesn’t expect Canadian suppliers to experience significant issues arising from Japan’s crisis over the short term, but they can be of help to Japanese automakers.

“This is a great opportunity for Canadian auto parts suppliers to demonstrate to the Japanese OEMs that they are onside, and supportive, even if they aren’t going to get ongoing business,” says APMA president Steve Rodgers.

There are currently some supply shortages that are proving to be challenging, such as mass airflow sensors. Rodgers says the Hitachi plant in Japan, which likely has 60% of the world supply, was heavily damaged.

He also notes one North American OEM will likely handle some of its power train shortage by shipping from North America, “so there’s an upside for Canadian suppliers who are more North American based.”

According to the AutoCompass report, Renault/Nissan had to shut down its Iwaki engine plant, the primary source for the VQ Series V6 engines used by Nissan in Japan. The plant’s future is in question because of its 50-kilometre proximity to the damaged nuclear plant. Some of the lost production will come from excess capacity at its Decherd, Tenn. plant.

The APMA doesn’t see Toyota making any other significant sourcing decisions short term, but Rodgers says the automaker knows it needs more global distribution of its parts and to source components from two different geographic locations for greater flexibility.

Longer term, Honda may consider moving its engineering centre for the Civic to North America, which Rodgers says will make interaction with Canadian suppliers easier.

A higher Japanese yen (inflated even higher by the disaster) was already pushing Japanese OEMs to source more of their parts and major components globally. Rodgers doesn’t expect a lot of that business to come to Canada and the US, although some may go to Mexico; but there will be opportunities for Canadian suppliers who are on top of where the new sourcing is going.

There will be production interruptions, but mostly in Japan. The report identifies the self-reliant Hyundai and Kia as likely winners as the Japanese industry recovers. And there will be other non-Japanese OEMs looking to gain market share.

Rodgers’ advice to suppliers: “Pay attention to all of these impacts.”

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