Japan Automakers Brace for Production Cuts?

TOKYO – If there was one question that loomed over the Japanese automakers this earnings season, it was how much longer they can maintain current manufacturing levels at home when profits are set to drop sharply in the wake of the March disaster.


The ongoing shortage of key components and the grim reality of factory lines running half idle seem to have lifted the taboo of outwardly admitting cutting jobs at home and moving more factories overseas makes better economical sense, an issue that most CEOs until now were loathe to admit even as the yen surged to record highs.

“Japan’s manufacturing sector is at a great disadvantage,” said Akio Toyoda, the president of Toyota Motor. “But we must do everything we can to protect employment.”

His plea was immediately rebuffed by his own CFO sitting next to him.

“As CFO, you can’t go on at 80 yen. I feel that the circumstances have gone beyond the level that a single company can handle,” said Toyota CFO Satoshi Ozawa.

All 10 of the listed Japanese automakers could not give guidance for the new fiscal year that started in April, highlighting the depth of the disarray to one of Japan’s biggest industries following the March earthquake and tsunami. The nuclear crisis at Fukushima and the abrupt shutdown of a separate nuclear reactor in central Japan, where Toyota is based, have raised the prospect of more disruptions as a result of electricity shortages during the summer.

Nissan Motor , which relies far less on production in Japan than Toyota, was the only one of the big three car makers to report improved earnings in the January to March quarter. The last of the auto companies to report, Nissan said it posted a net profit of 30.8 billion yen in the last quarter, reversing a net loss of 11.6 billion yen a year ago. That compares with profit declines of 77% and 38% for rivals Toyota and Honda respectively during the same period.

“One million cars produced in Japan doesn’t change, this is a commitment,” Nissan CEO Carlos Ghosn said in an interview. “No big change in terms of strategy but some adaptation coming particularly from our supplier network.”

However, he added that he thought Japan’s importance was more as research hub and training ground for its global operation rather than a manufacturing base as most of the cars it sells in its fastest growing markets like China and India are already built there.

CEOs of Japanese companies are also complaining more loudly about losing market share to Korean and European rivals, saying the weaker won and euro has given them an artificial advantage at a time when Japan is scrambling to come up with the necessary parts just to build a car.

“Now we can’t compete, we don’t have any cars,” Ghosn said.