IHS Automotive Releases Japanese Light-Vehicle Production Update

As part of IHS Automotive's ongoing coverage of the Japanese earthquake disaster, the latest scenario analysis underscores that the impact on non-Japanese production will worsen substantially before it improves. In a positive scenario, 15% of global output could still be affected at the eight-week point; fully 30% of global output could be affected at the same point in a negative scenario. Global light-vehicle output is expected to be affected by approximately 600,000 units to the end of March. The total effect on Japanese output could reach 530,000 light vehicles by the end of March—rising at a rate of 37,000 units per day if all volume is influenced in the country. Several original equipment manufacturers (OEMs) have started component production in Japan to prepare for vehicle output later this week (as well as supplying international operations); the ability to begin production is still variable and may be short-lived. Component shortages have begun to affect locations outside Japan at both Japanese and non-Japanese OEMs. All OEMs and suppliers in the Tier-1 and -2 sectors are analysing their exposure to components emanating from the quake/radiation zones. It could take approximately seven weeks of full production with overtime at a facility to compensate for one week of lost production volume.

Readiness of Supply Base to Re-Engage Is Critical

• The state of several OEM production facilities in the affected zone has been roughly established, revealing varying levels of production readiness. Most component/material facilities have suffered little or no damage that would inhibit the resumption of output once a stable component/system supply resumes.
• Once the state of readiness of the facilities is established, issues with the electric, water, natural gas, communications, and transport infrastructures need to be evaluated. Ample incremental capacity to compensate for challenged Tier-1, -2, and -3 capabilities in the north-eastern region of Japan is difficult to launch quickly, and quite possibly non-existent. Some components are single-sourced—the immediate shifting of supply is not possible.

Key Component Supply Issues to Overcome

• Electrical/Electronic Components: The capability to produce integrated circuits, semiconductors, LCD displays/films, and sensors is still in question. This is possibly most important to global OEMs—the downstream effects are beginning to influence volumes outside Japan. The loss of this output, already in tight supply, is now being felt globally with varying effects. The impact varies from immediate to 4–6 weeks downstream.
• Petro-Chemical Feedstocks: The state of the production capability for petro-chemical feedstocks (speciality resins, pigments, butylenes, etc.) is also becoming clear. Four petroleum "crackers" are not operational currently, slowing the process to refill low petro-chemical feedstocks.
• Powertrain Components: The quake zone is the home of gear manufacturing, seal systems, clutch components, speciality bearings, and other capital-intensive, application-specific components, for which alternate supply sources are difficult to find.
• Speciality Material Shortages: These include automotive float glass, specific metals, and silicon output. Effects vary depending on sourcing, inventory, and availability of alternative supply.

Impact on Light-Vehicle Production in Japan

• Toyota output is officially idled through to this weekend (2–3 April) except for two facilities manufacturing hybrid offerings. Given the state of the manufacturing infrastructure, it is expected that Toyota will need to keep most of its facilities fallow until the condition of downstream supply becomes clearer. Downtime is expected to extend into next week.
• Nissan's situation is similar to that of Toyota, in that the vast majority of its facilities are not producing vehicles. The Iwate engine plant (producing V-6 engines) will need to depend upon its sister facility in the United States as a temporary backup, as it may not be operational until mid-April at the earliest.
• (Fuji Heavy) Subaru has closed its facilities through to this weekend. Similar to Honda, it has several just-in-time (JIT) suppliers in the quake zone that need to establish production readiness.
• Honda has idled its core Sayama and Suzuki facilities through to this weekend, and likely beyond. Many of its core JIT suppliers are not only in the quake zone but in the less accessible radiation zone. Quite possibly, Honda's core supplier base could be most affected by the disaster.
• Suzuki has closed all of its plants in Japan through to this weekend, after which the company will assess the situation.
• Mazda has reported that although none of its facilities has been affected by the disaster, as its plants are primarily located in southern Japan, well away from the quake-affected areas, it will idle production nonetheless through to this weekend.
• Mitsubishi ran some half-shifts this week, although parts supply has again been drawn down. Output is cancelled through to this weekend.

Impact on Output Outside Japan

North America

• Output of Japan, Japanese OEMs in North America are expected to be affected (outside the cancelled overtime) by early April. Effects will be rolling and variable, although real. Of greater variability is the impact on non-Japanese OEMs, especially the "Detroit Three". Both General Motors (GM) and Ford have been affected through downtime or mix shifts, although more acute effects are expected to occur by mid-to-late April.

Europe

• Electronics supply is more of an issue with European OEMs. Mass air flow sensors, LCD screens, and other electronic components are key here. PSA and GM have been affected thus far, although others are expected to be by mid-April.

China

• Whereas China is building many of the same vehicles as Western Europe, Japan, and North America, the strikes of 2010 drove many OEMs in the country to keep a safety stock. Western OEMs will be affected first, although possibly not until mid-April—the Japanese OEM joint ventures may be first hit.

India and ASEAN

• Japanese OEMs are core to both regions. Thai output is heavily focused on Japanese OEMs, and thus the supply impact could be faster than in other emerging markets. Thailand has nominal electronic components production for automotive applications, well co-ordinated with Japanese supply. There is a safety stock, although this may last only into mid-April before issues emerge. India is in a slightly better condition, in that supply lines are longer and thus in-route inventory is stronger. Supply issues regarding speciality components may be apparent by late April.

Outlook and Implications

Scenario Analysis