No full production in Toyota until year-end

About 300 Toyota cars left a factory in Iwate Prefecture on April 16, the first shipment since the March 11 earthquake.

The time frame was the longest yet described by a Japanese car company in assessing the continued effects of the supply chain disruptions caused by last month’s destructive quake and tsunami.

Though Toyota’s 17 plants in Japan escaped the disaster relatively unscathed, factory lines are working at only half volume here and at 40 per cent overseas, as vital suppliers in Japan’s worst-hit areas struggle to restart operations. Toyota had indicated this week that its Japanese operations would remain at half-speed through at least June 3, but was unwilling to speculate beyond that. And it had said that it would cut production at its North American plants by 75 per cent in the next six weeks to conserve its limited supply of parts made in Japan. The two other main Japanese automakers, Nissan and Honda, are also operating at only about half of normal production volumes in Japan.

Akio Toyoda, president and chief executive of Toyota, said he expected to ramp up production gradually in Japan, starting in July, as more parts makers came back on line. Toyota will raise production at its overseas plants a month later, in August, to allow for the parts to arrive from Japan, Toyoda said. Production at home and overseas will return to predisaster levels at all factory lines and across all vehicle models by November or December, Toyoda said.

“The damage has been so widespread in this unprecedented calamity that its economic effect is being felt throughout Japan and in every industry,” Toyoda said. He added that the automaker had dispatched employees to help recovery work at some of its most vital parts makers.

The severe disruptions come as a painful blow to Toyota just as it had appeared set to shake off the effects of a sharp slowdown in sales after the global economic crisis, as well as its handling of a spate of recalls. The reduced production also highlights a downside to Toyota’s insistence on making almost half of its cars in Japan and shipping them overseas. Also, its celebrated just-in-time production system, which reduces parts inventories to a minimum, may have made the disruptions worse. The automaker estimates that it faces shortages of about 150 critical parts, down from about 500 immediately after the March 11 quake. Atsushi Niimi, executive vice president in charge of production, said that Toyota had switched suppliers in some cases to speed the recovery. He said it had been a bitter revelation to Toyota that its cars, even those produced overseas, still relied so heavily on Japanese parts. “We need to procure more parts overseas, and we also urge our suppliers to make more forays outside Japan,” Niimi said. He added that Toyota would diversify its supplier base over all to make its supply chain more resilient.

“It’s something we don’t want to think about,”  he said, “but it is something we cannot avoid if we are to continue to do business in a quake-prone country.” Toyoda, the company chief, said continuing aftershocks made the outlook uncertain. “We just had an aftershock yesterday,” he said. “As these continue, the rapid recovery we’ve seen can come undone. The future is impossible to predict.”

Another concern is the severe energy shortage brought by the crisis at the Fukushima Daiichi nuclear power station, 140 miles north of Tokyo, as well as damage to other power plants in the region. To avert a power supply collapse, the Japanese government initially instructed companies to reduce their energy use by as much as 25 per cent. But frantic efforts by utilities to increase power generation at plants outside the worst-hit zones, as well as a public drive to conserve energy, has eased the energy shortfall, allowing the government to lower its directive to 15 per cent.

Niimi, the executive vice president for production, said that Toyota was discussing energy-saving measures with other automakers, like shutting production lines during the week and running them on weekends, when more electricity is available. Still, Toyoda said, the company was committed to keeping production and jobs in Japan.