Ripples of the tsunami

Automotive production facilities in northern Japan were hit hard by the earthquake and tsunami back in March.

For some companies the impact of the disaster has been minimal, but other companies have had to reduce production by half or even bring production to a halt -- albeit briefly. The facilities, the roads and rail lines used to transport freight and even the workers themselves were swept away in the rising waters.

If the events that caused such damage and suffering were seismic in nature, then 'seismic' is also a useful word to describe the economic impact sustained by the Japanese automotive industry as a consequence.

Figures released by the Japan Automobile Manufacturers Association (JAMA) reveal that total production in March peaked at 404,039 units -- 541,181 fewer or 57.3 per cent less than for the month of March 2010. Japanese automotive production was not so much decimated as slashed by more than half.

The Japanese crisis will almost certainly force a re-think about the way car companies interact with their supply chain partners, but there's a lot of inertia to overcome. Around the world automotive manufacturers are heavily locked into a jigsaw puzzle amalgam of parts logistics and the impact of the natural disasters can be felt through all strata of the supply chain.

To gauge how importers of Japanese cars will be affected here, the Carsales Network spoke with local PR representatives for the four leading Japanese brands in the country.

Of the four, the industry's biggest player, Toyota, is the only company that builds cars here as well as importing them. The supply chain issue affects Australian production of the Camry and Aurion, as well as production of the imported vehicle range.

Public Relations Manager Mike Breen confirmed for us that production at TMCA's Altona plant would slow to 50 per cent during May. This is in line with the rest of the Toyota world. Despite the corporation boasting eight regional plants building the Camry, none can continue to build the mid-size car in the same numbers as before the disaster -- and certainly there's no chance of production being diverted from one plant to shore up supply in a non-traditional market.

"They're all in the same situation," Breen advised. "The United States is running at 50 per cent; China, Taiwan, Thailand... everybody's in the same situation."

Toyota doesn't expect production in any of its plants to be normalised before November or December of this year at the earliest -- provisional dates announced on Good Friday by TMC President Akio Toyoda. The company's production facilities have fallen victim to single-point sensitivity -- heavily relying for global production on critical parts supplied by companies affected by the earthquake and tsunami.

Despite that, Toyota's Aussie dealers are getting by for the moment, Breen explained.

"There are still vehicles coming in... that are either on the boat or on a wharf and ready to go. So vehicle supply at the dealerships right now is okay. Again, it depends on which model you want to order and what colour you want and various other things.

"For instance, if you want a black FJ Cruiser, it would probably take a little bit longer than if you walked in and there was a yellow one there -- you could buy [that] straight away.

"What the situation will be like in another six weeks is hard to tell at this stage."

For a company such as Toyota, fleet buyers are a very large part of the customer base, so they're possibly less likely to wait for a particular specification of imported car to become available than private buyers might -- especially if the order is to fill a specific need.

One question that Toyota management will be discussing among themselves pertains to fleet sales for its small car. Will fleet buyers hold off purchasing a shipload of Corollas when Holden is now able to offer the locally-manufactured Cruze?

"Our fleet guys are working with the fleet buyers more closely now than ever before," Breen responded on that point, also observing that any sales conquest would depend on how urgent was the need for fleet vehicles to be replaced.

Breen couldn't otherwise comment on the situation with fleet buyers, but did explain that, through a process of regular and frequent issue of dealer bulletins, TMCA is keeping its dealer network appraised of the unfolding situation. In turn, the dealers are taking special care to keep the buyer informed that the vehicle requested may not be available for some months if it's not already in dealer stock.

Toyota's sales have been in decline this year, both for imported and locally-built vehicles. According to VFACTS, only the Corolla, HiAce bus, LandCruiser 200 and RAV4 have sold in larger numbers for 2011 than during the same time last year. But the supply constraints can't actually be counted on to ease excessive stock in specific model lines, it seems. It's just as likely to be the supply of high-demand cars limited by factory output.

With Toyota committed to reducing production, both here and elsewhere around the world, the company is constrained in the months leading up to June -- the end of the financial year, which is traditionally the biggest selling month for Toyota. At least some if not all of the stock to drive that sales program will be on the water or already in Australia, but managing stock levels appropriately will be crucial for the company over the next several months.

Dealer inventory is a particularly fluid situation at the moment, according to Breen. TMCA orders the bulk of its stock up to 12 months in advance from the factory and any game-changing event such as the earthquake has the potential to throw the company's logistical strategy into complete disarray -- and it's not like the company is dealing with a shortfall of 20 or 30 cars here or there.

Toyota tries where possible to run a lean inventory. The output from Altona is more or less built to order, as Ford has done with the Territory and Falcon in the past -- and stock orders from Japan reflect the local arm's long experience in the marketplace, getting to know the company's customers and their buying habits very well.

"Normal business is vehicles are built to order -- from Japan," explained Breen. "A dealer places an order for 'x' number of cars -- and that's what arrives. Whilst he may not have a customer wanting a red Corolla sedan, he understands that in any given month so many people will come in and ask for a red Corolla sedan. So [the dealers] order on the basis of the history for each vehicle. Vehicles are built to order and then they're brought into the country and allocated to dealerships.

"We tend not to have cars sitting on grass, at all. In most cases -- not all -- cars come in and go through the due processes and then [they're] despatched to the dealer."

Breen reiterated comments made two years ago by David Buttner, Senior Executive Director Sales and Marketing for Toyota on the subject of forward ordering.

"We have what they call annual sales targets, so from January to December we put in orders to Japan the prior year. Say around October, we'll put in all our orders for cars for the next year. They're basically locked and loaded by December and if we've ordered 3000 Corollas in January and February and March -- that's what we're going to get, come hell or high water.

"You can't turn up in the middle of February and say 'we want 5000 in March'... you'll still get your 3000 in March."

Depending on how long it takes for Toyota's global production to recover (half a year, it seems) will drive how creative the retailers need to be, shifting stock around the country. It's not unreasonable to expect that Toyota will face a significant backlog of orders once the production facilities are back up to speed. In the meantime, feedback indicates customers are willing to wait, Breen said.

"By the time they've walked in they know which car they want -- and why they want it," he explained, "and they're generally prepared to wait for it."

Over at Mazda, the situation seems less fraught than Toyota's, but that's also based on an unclear reading from the crystal ball. The importer has been kicking goals aplenty this year, selling in numbers significantly beyond the same period last year, despite the slowdown in national sales during the early part of the year as a result of the Queensland floods.

Supply for the escalating local demand is about to be a serious concern for the importer however, but just how serious remains to be determined.

"We've been running on partial production for the past few weeks now -- at both plants, at Hofu and Hiroshima," explained Steve Maciver, Mazda Australia's Public Relations Manager. For the present, there's no word on when the company's two Japanese plants will be back to full production, according to Maciver, although an announcement will be made in the fullness of time. Until that's known Mazda can't readily micromanage the local dealer inventory, but there's no immediate panic.

"Stock on the ground is reasonably strong for us at the moment," Maciver said. "We were in the fortunate position to have quite a fair bit of stock on the ground here in Australia when the quake and the tsunami actually hit. We also had a fair amount of stock on the water and on the way to us.

"Obviously, with reduced production since then, [that] has meant we're having to negotiate with the factory and work out exactly what that means for production going forward. Without having exact details on what we're getting I can say that we are going to have plenty of stock coming through over the next few months, so we'll be well positioned -- certainly [for] our core-selling models -- over the next couple of months."

Mazda has only just swapped its production source for the Mazda2 from Thailand's AAT facility back to Hiroshima, but Maciver says that the company won't reacquire production output from AAT in the short term. And Mazda Australia isn't looking beyond the short term currently.

"It's not something that's on the table at the moment; it's not something that's been discussed. Our main focus is to try and get the supply chain back up and running with our existing suppliers -- and get the Hiroshima and Hofu plants back up to full capacity as soon as we can."

On the local front, buyers are yet to begin issuing loud demands that Mazda come up with the desired specification of car in a reasonable timeframe -- an outcome of the importer being blessed with stock, as Maciver explained.

"If we are running on reduced production volumes, that will have some flow-on effect, but the main message is that we've got plenty of cars on the ground. We've got more cars coming through -- and for the next few months if somebody wants to buy a Mazda, they'll be able to get a Mazda."

The operative phrase there is 'for the next few months'. For a company such as Mazda, aggressively committed to growing market share and holding on for dear life to fourth sport in the market -- if not attempting to take third spot from Ford -- the quake and tsunami have potentially put a major crimp in local sales projections for 2011.

"We can't give you a forecast... as of yet," said Maciver on that point. "We're hopeful we're going to secure a good share of production, moving forward. We don't know what that share's going to be, as of yet; we're still working with the factory to find out exactly where that's going to end up.

"There is an element of uncertainty, but there are two things that we can control... we can control selling as much product as we can get our hands on. The other factor of that -- and it's not something we have full control over -- [is] we can certainly work very hard with the factory to negotiate and ensure that we secure as much of that production as we possibly can.

"So those are the two things we are focusing on; beyond that there's not much that we can do here, from Australia to control the outcome of the end-of-year sales figures..."

But Maciver remains generally positive about Mazda's situation over the remainder of the year.

"It's not necessarily a bad situation for us at the moment..." he finished, on a high note.

Nissan's outlook seems much clearer than Mazda's and there's little to stand in the way of the sixth-placed car company remaining in that position, underscored by substantial sales growth for 2011 so far.

"The plants have been getting back on their feet, progressively, since the tragedy over there," the company's head of Corporate Communications, Jeff Fisher, explained to the Carsales Network.

"We're told that next week, just about every one of our plants, including the two that were most impacted in the north will be back at full operating capacity. Those are Iwaki and Tochigi. Iwaki is where they make the V6 engines, which we use of course in [the 370Z] and Murano. At Tochigi we actually assemble the GT-R and the Z."

According to Fisher, "the supplier service into all plants remains patchy", but there's no "major dislocation" for Nissan, either in its home country or in Australia. Micra, Tiida and most of the Navara range are sourced from Thailand and the Dualis comes from the UK, with the remainder of the D40 Navara range and the Pathfinder hailing from Spain. Only the Maxima, which was being built in Thailand until a month or so back, is being imported from Japan.

Fisher did say that "quite a lot" of left-hand drive Infiniti production for the US had been destroyed at the Togichi plant, but this obviously had no impact on Nissan's sales activities in Australia.

With the stock supply situation looking fairly rosy for the importer, Nissan's sales staff haven't had to field a lot more enquiries concerning delivery times, Fisher explained. Even before the quake, the company was juggling vehicle stock to keep delivery prompt, although the demand for the K13 Micra has exceeded supply from launch.

"Only now are we beginning to get better supply for demand. We sold more than a thousand last month and that continues to climb," he said. It's a similar situation with the Dualis Ti and +2 variants, built at Sunderland in the UK.

"We've had to get in line and manage expectations for that. Customers are not able to get the particular colour they might want, but as long as we get the spec they're looking for..."

Fisher believes that Nissan Australia will finish 2011 ahead of last year, in respect of total market share. Additional sales will come from more front-wheel drive X-TRAIL and Dualis vehicles in the pipeline, and the Micra.

Taking into account that Nissan's local sales figures for the first quarter of this year are already nearly 3000 units ahead of where they were for the same quarter last year (18,258 versus 15,298), the importer can expect to finish the year well ahead of 2010 -- irrespective of the business interruption caused by the earthquake.

"Our expectation is that the TIV -- total industry volume -- will remain pretty much stable and, as a result, we would expect that our market share would remain strong... " Fisher said.

The Nissan spokesman goes on to say that the fundamentals of the Australian economy are on track for another good year. There's no problem with demand in the market, just supply.

"Our view from the planners here is that the market has begun strongly; indications are that the Australian economy will stay pretty buoyant throughout the rest of the year. Nothing's happened in the first four months of the year to alter that view..."

If Nissan's sales had remained at the same level for the first quarter of this year, the importer would have been overtaken by Mitsubishi, which sold 13 whole cars more during Q1 of 2011 than Nissan sold in Q1 last year.

Like Nissan (and Mazda), Mitsubishi has been on a winning streak this year, although its sales growth for the year to date has come from just three model lines, the 4x4 Triton, the Challenger and the ASX. Lenore Fletcher, head of Corporate Communications for Mitsubishi in Australia (MMAL), doesn't anticipate local sales will be held back by the supply constraints to any large extent.

"Our factories are situated to the south-west of Tokyo, so they're out of harm's way," she said.

"We have got some issues, in terms of components... initially we had enough stock to keep us going, so we haven't experienced any real shortage yet... and enough coming in at that time, so what we had -- forward orders, et cetera -- was all terrific.

"There was some concern that we were going to be short of some diesel componentry in particular, over the coming months. But I have to say, the entire outlook is looking more and more positive..."

That diesel componentry shortage may hurt production of a couple of models, said Fletcher, who would not be drawn on which ones specifically, but given its strong sales growth this year, the offroad Triton range would be one area of concern. In year to date sales numbers, the Triton 4x4 was second only to the Lancer in the company's local product range.

Fletcher concluded the interview by revealing that buyers "have been extremely understanding so far" about the prospect of delayed delivery for their new car.

Picture courtesy Chief Hira/Wikimedia Commons

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