Japanese Automakers Try to Recover From Supply Chain Disruptions

Next week's earnings season from Japanese blue chip companies will offer the first glimpse into how much the March 11 earthquake and ongoing nuclear disaster will dent profit in the new fiscal year that just started.

Nissan CEO Carlos Ghosn addresses a press conference at the Shanghai Auto Show.
Philippe Lopez | AFP | Getty Images
Nissan CEO Carlos Ghosn addresses a press conference at the Shanghai Auto Show.

The auto industry is expected to be among the hardest hit as ongoing supply shortage of components has cut production drastically in the last six weeks. Japanese auto executives attending the motor show in Shanghai, many speaking at length for the first time since the quake, said they have yet to grasp the full impact of the disruptions.

"Everyone wants a number but that number will probably change next week," said Andy Palmer, executive vice president at Nissan Motor . "There will be some reevaluation of the way we manage the supply chain."

Although keen to show their presence in the world's biggest and fastest growing auto market, many executives cut their trips short and hurried back to headquarters as they grappled with continued production cuts.

Japanese manufacturers have shifted production overseas over the last two decades but still rely almost exclusively on key components like electronics from Japan. The inability to find alternative source for technologically complex parts such as chips and a tradition to keep inventories low, the hallmark of just-in-time management, have both made the recovery process particularly difficult.

"There will be more of a shift overseas as companies try to mitigate or reduce their risk exposure. If that shift accelerates that will create more problems, like the hollowing out of Japanese industry," said Osamu Masuko, president of Mitsubishi Motors .

The shortage comes as auto demand in the key north american market recovers, and analysts warn Japanese car companies could miss out on an expected rise in demand for fuel efficient cars as gasoline prices climb.

The problem could be especially acute for Toyota, which has the biggest manufacturing base in Japan. The company has already announced that factories in Japan will be running at half capacity until early June.

Akio Toyoda, the Toyota president who seldom appeared at motor shows until this year, made a brief stop in Shanghai today to pledge that Toyota will build low-emission cars and components in China.

Honda also announced more concrete plans to bring electric cars to China, announcing plans to start production in 2012. Still, questions about the parts shortage dominated the news conference at the show.

Although Honda said production in China would not be affected until the end of May, they did not rule out the possibility of disruptions thereafter.

"My mind is completely preoccupied with how fast we can recover," said Honda president Takanobu Ito.

Mitsubishi kicks off reporting season on April 27th, followed by Honda on April 28th and Toyota on May 11th.