By Hans Greimel
TOKYO -- Playing a frantic game of catch-up, Japan's automakers are running assembly plants at a pace faster than pre-earthquake schedules in order to boost inventories and recoup sales.
Toyota and Nissan are leading the surge, with output in Japan not only back to normal but exceeding year-ago levels. Mazda and Suzuki have reported their first year-over-year production increases since the March 11 quake, and Honda, Subaru and Mitsubishi are close behind.
But even as the companies return to full domestic output, big hurdles remain.
Some model variants are still in limited production because of lingering shortages of parts, especially microcontrollers. And even with output restored, it could take months for carmakers to rebuild prequake inventory levels, especially at U.S. dealerships.
Suppliers may struggle to keep pace with the surge. And automakers are rejiggering supply chains so they won't get burned again.
They are racing to find multiple sources for parts; tighten control over lower-tier suppliers; buy more parts overseas; and even bolster stockpiles, an abrupt change from Japan's treasured just-in-time approach.
Building inventories
Toyota is among the most aggressive in its supplier overhaul.
"We have instructed them to have a plan that allows them to go back to normal operations within two weeks of a major disaster," Shinichi Sasaki, Toyota Motor Corp.'s executive vice president for global purchasing, told Automotive News.
Toyota's domestic output rose 12 percent in August -- its first year-over-year increase since the earthquake. But it does not expect normal U.S. inventories until March.
Nissan's domestic production actually edged ahead of last year's in May. But not even Nissan says it can make all the car variants it wants. Because of pinched pipelines for some microcontrollers, the small computer chips that control everything from engines to entertainment systems, Nissan does not expect to return to unrestricted production until later this month.
Subaru says its Japan plant will be back to normal by the end of October. But it will take until March for the brand to achieve prequake U.S. inventory levels, especially for Japan-made models such as the Forester SUV and Impreza sedan.
Chips still down
Output of most models at Honda is almost back to normal. But it is still facing shortages of the redesigned Civic in the United States and the Brio small car for Asia. Because those cars were introduced after the quake, Honda couldn't stockpile enough microchips. Civic production should return to normal by the end of this month, and U.S. inventories of the model are expected to be restored by late November.
Nissan spokesman Toshitake Inoshita said: "In terms of raw production numbers, we have more than full production. But we are still waiting on some electronic chips."
Chip maker Renesas Electronics Corp. of Tokyo remains a bottleneck, but that will ease soon. The supplier, which controls about 41 percent of the global market for automotive microcontrollers, returned to prequake output at the end of September, spokeswoman Kyoko Okamoto said. That means a normal flow of chips will start to reach automakers this month.
But Renesas is far from recovered. It recouped prequake output by shifting work from its damaged Naka factory in Japan's quake zone to chip foundries in Singapore and Taiwan. The Naka factory is still limping along at just over half its prequake capacity. Until the factory is fully restored, it may be hard for Renesas to meet increased demand as automakers ramp up.
Masaya Yamashita, Honda Motor Co.'s global purchasing boss, says: "In order to supply to the carmakers, I think Tier 1 suppliers are really struggling to make deliveries to all of us. The parts are reaching us. But the inventory of parts in the chain is pretty tight."
The pinch has Toyota revising its famous low-inventory, just-in-time production system.
Normally, Toyota carries a two-month inventory of Renesas chips, global procurement chief Sasaki says. But it will raise that figure to as high as four months.
"Right now we are recalculating the optimal volume of inventory that is necessary based on our estimate of how long it will take production at our suppliers to resume after a disaster," he said.
Another new norm: paternalistic big-footing of lower-tier suppliers, a practice previously all but unknown.
Take Nippon Chemi-Con Corp., a maker of aluminum foil for electrolytic capacitors for the electrical system. Its factory was wiped out.
Toyota, which is accustomed to working intimately with Tier 1 and 2 suppliers, decided to get active with lower-tier suppliers that had been flying far below the radar. But when Toyota stepped in to help Nippon Chemi-Con, the industry supplier rebuffed Toyota as an interloper, according to an internal Toyota report reviewed by Automotive News.
Only after weeks of arm-twisting by did the supplier acquiesce to Toyota's help in pumping out 700 tons of liquid waste that had flooded the factory.
Paint battle
Toyota also butted heads with pigment maker Merck, which makes a pearl luster pigment called Xirallic. Merck's kilns in Onahama, Japan, were damaged and unable to supply the pigment, which is a component in many paint colors and is used in about 20 percent of Toyota's vehicles.
Merck rejected Toyota's offers of assistance, according to the Toyota report. So Toyota tried making its own pigments -- with mixed results. Of 67 missing colors, Toyota could successfully substitute only 37.
That was enough to tide Toyota over while Merck recovered. But Sasaki said Toyota asked Merck to establish a backup production site in Germany, the supplier's home country. Merck agreed.
Expect all automakers to keep lower-tier suppliers on a tight leash. Toyota, Nissan and Honda are demanding more control over where suppliers get their components.
"The parts and materials that remained the biggest issues for the longest time after the earthquake aren't the parts that we buy, but the parts or materials that the Tier 1 or Tier 2 suppliers buy," says Honda's Yamashita. When possible, he says, "we want to have dual sources."
Bouncing back
Change in monthly production in Japan, vs. 2010
April June Aug.
Toyota
–75% –13% 12%
Nissan
–49% 2% –3%
Honda
–81% –51% –17%
Source (via Carscoop);
http://www.autonews.com/apps/pbcs.dll/article?AID=/20111010/OEM01/310109970/1117