Japanese carmakers in China face damaging supply crunch

PUBLISHED : Friday, 18 March, 2011, 12:00am
UPDATED : Friday, 18 March, 2011, 12:00am

Supply chain disruptions in the wake of last week's earthquake and tsunami in Japan may spell trouble for Japanese carmakers in China if the situation worsens or current factory closures are prolonged.

Shares in the mainland joint-venture partners of major Japanese car and truck manufacturers fell yesterday on fears that existing inventories of imported components from Japan could be run down in a matter of weeks.

Production at nearly all of Japan's car plants and their supplier factories has been suspended since the quake struck last Friday, and continuing uncertainties over when normal operations there will resume have raised concerns over potential forced stoppages at car factories in China, the world's biggest car market.

Japan is conserving electricity and struggling with rolling blackouts as its nuclear power crisis worsens and fears have grown that crippled reactors at the Fukushima power plant are teetering on the verge of meltdown. As of yesterday, 10 major Japanese car and truck makers continued to suspend production at more than 50 plants, according to Bloomberg figures.

So far, no Japanese firms are reporting disruptions to production at their mainland plants. Most source between 70 per cent and 95 per cent of the components that go into their Chinese-made cars locally, and inventories of the parts they do import may be sufficient to sustain normal production on the mainland for several weeks.

'Based on our latest assessment, the earthquake and tsunami in Japan won't impact Honda's China production before the end of this month,' Honda Motor (China) Investment said yesterday. 'Up to now, operations are proceeding in a normal and orderly fashion' at all Honda's joint-venture plants.

The mainland imported 691.22 billion yen (HK$68.53 billion) worth of motor vehicle parts from Japan last year, up 25 per cent from 2009, as well as 545 billion yen worth of cars, according to CEIC Data.

Against this backdrop, the 'just in time' nature of the modern supply chains championed by Japanese carmakers, coupled with the prospect of backlogged global demand for key parts and components once Japan's car and component factories do resume production, has left investors unsettled.

Shares in Dongfeng Motor Group, the mainland joint-venture partner of Nissan and Honda, fell 6.98 per cent yesterday to a six-month low of HK$12.26. Dongfeng's shares are down 11.1 per cent from their March 10 close before the quake.

Qingling Motors, which assembles Isuzu branded trucks in China, saw its shares decline 1.94 per cent yesterday and 10.6 per cent in the past week.

Shares in Guangzhou Automobile Group - which makes cars on the mainland through tie-ups with Toyota Motor Corp and Honda, and trucks with Toyota's Hino Motor unit - fell 4.56 per cent to HK$8.80, also a six-month low. They are down 8.6 per cent since the day before the quake.

'Visibility is still very poor because nobody really knows specifically what parts are purchased from Japan, and the [mainland] automakers don't really disclose that information,' Samsung Securities analyst Steve Man said. 'It would be a good sign if Japan starts to resume auto production.'

The potential impact extends well beyond the car industry.

'Japan's transportation infrastructure has been crippled, electric power to factories is facing constant disruption and nuclear power capacity has been severely limited after last Friday's devastating earthquake and subsequent tsunami,' Moody's Analytics economist Katrina Ell wrote in a research note. 'Given that Japan plays a pivotal role in the global production supply chain, factory shutdowns are harming global output.'

Factory closures in Japan

Fuji Heavy Industries (Subaru): 5 plants shut to Mar 20

Daihatsu: 4 plants shut

Hino Motors: 3 plants shut to Mar 18

Honda: 6 plants shut to Mar 20

Isuzu: 2 plants shut to Mar 18

Mazda: 4 plants shut to Mar 20

Mitsubishi Motors: resumed operations at 3 plants

Nissan: 4 plants shut, 2 plants resumed work yesterday

Suzuki: 6 plants shut until Mar 21

Toyota: 21 plants shut until Mar 22