Japan’s disaster spells trouble for South Africa
All Japanese vehicle manufacturers selling into South Africa have been affected by that country’s recent earthquake and tsunami disaster. If the latest assessments of implications are anything to go by, a tough (but hopefully short) time lies ahead for a section of the local assembly industry, its dealerships and customers, writes UDO RYPSTRA
On Friday, 11 March this year, the north-eastern part of Japan was hit by a double-whammy earthquake measuring 9.0 on the Richter scale. It was one of the five strongest ever recorded, and was followed by numerous aftershocks and a powerful tsunami. Reports have indicated that more than 27 000 people died in the disaster with 10 000 people being unaccounted for.
Apart from wiping out low-lying residential and industrial areas on the Pacific coast, making roads impassable, it brought down communication lines with the rest of the country. In addition, the nuclear power plant, which was crippled by the tsunami, caused parts plants that were still standing to go off-line and created an electricity supply crunch in the Tokyo and neighbouring areas that is expected to continue for months.
Most Japanese vehicle production plants on higher ground escaped the double disasters, or only suffered earthquake damage to buildings and equipment. But the destruction of parts factories forced the majority of prominent Japanese vehicle manufacturers to close down assembly plants over that dreadful weekend, and only to reopen at the end of the month.
During the second half of March relief teams were sent in to assess the damage done to their parts supplier networks, and they were also forced to take stock of their parts inventories in Japan and assembly plants around the world, and take steps to preserve these as much as possible.
By the end of March, many Japanese plants had started production again, but on a limited scale. As a result, many overseas assembly plants – in Australia, China, South Africa and North America – also had to introduce measures such as non-production days (four-day working weeks), restrictions on overtime, or are even now working four-hour half-shifts.
Vehicle manufacturers affected include: Toyota Motor Company (TMC) and its trucking subsidiary Hino Motors, Nissan Motor Company and its trucking subsidiary UD Trucks, Isuzu Trucks, Mitsubishi Motors Corp, the Honda Motor Company plants in Japan, Subaru, Daihatsu (owned 51% by TMC), Mazda, Suzuki and forklift manufacturers such as Toyota Industrial Equipment (TIE).
The impact is being felt in South Africa, too. The country’s medium and heavy commercial vehicle market is dominated by Japanese trucks, while around 40% of trucks bigger than 3,5 t gross vehicle mass sold locally last year were Japanese brands. And the impact will be felt at a time when local assemblers of Japanese trucks were expecting to see a sharp increase in new truck sales following the recession, but will now have to downscale their forecasts. Statistics released by the National Association of Automobile Manufacturers of South Africa (Naamsa) last month showed that new vehicle sales for March improved by 9 937 units, or 22,8%, compared with March last year. However, the association said that concerns over the future availability of Japanese products may have contributed to some pre-emptive buying in March. It also warned that Japanese component and vehicle stock shortages may have a negative, but “hopefully temporary impact on domestic sales and exports”.
Probably the worst affected of all is Toyota Motor Corporation and its worldwide distribution network. Apart from its controlling interest in Hino Motors and Daihatsu, it also has a 5,9% shareholding in Isuzu, which, though small, still makes it the third-largest shareholder in Isuzu, behind Itochu Corporation and Mitsubishi Corporation. TMC announced on 9 April that it would only resume production at all its plants in Japan on 18 to 27 April at half capacity, adding that all plants would be closed again from 28 April to 9 May for Japan’s “Golden Week” holidays, a traditional closing time unrelated to the earthquake/tsunami aftermath.
To quote a Toyota Global Newsroom press release: “A decision on post-holiday production will be made after assessing the parts supply situation.” Toyota had planned to produce 3,89 million vehicles in Japan this calendar year, including output from its Hino truck-making and Daihatsu mini-car subsidiaries. This is down 4% from 2010, but still represents nearly half of its global production forecast of 8,69 million vehicles. It lost production of 260 000 vehicles during the year ending March 2011.
Among South African manufacturers who flew to Japan to assess the damage and implications in March was Toyota South Africa Motors (TSAM) president and CEO Dr Johan van Zyl. On his return, he said TSAM could continue production at its Durban plant without disruption until 21 April. It would then have to carry out a planned mini shutdown until 4 May. “During that phase we are hopeful of receiving the parts we need to continue production after the shutdown. We have already stopped all overtime and Saturday work to keep the plant to normal hours.”
At the time, Van Zyl believed that TSAM’s imported vehicle stockholding should be able to carry the company through the crisis in Japan, but that the impact on completely built-up (CBU) vehicles was unclear. TSAM imports parts, as well as the RAV4, Quantum, Yaris, Prius, all Lexus products, and Land Cruiser vehicles from its Japanese parent company, and produces the Hilux, Fortuner and Corolla locally. Local production also makes use of some imported parts. Van Zyl described the earthquake as a “huge tragedy”, and that the impact of the earthquake was spread over such a large area, where a significant amount of the gross domestic product was generated by the automotive industry.
“The impact on the motor industry is quite strong. This is the area where many components are made, such as silicon chips, rubber parts, materials such as paint additives and electronics.” The same applied for Hino, TSAM’s truck company. Hino Motors is Japan’s leading producer of medium and heavy-duty diesel trucks and buses and has been a part of the Toyota group since 1967, although it wasn’t until 2003 that Hino became a full-fledged subsidiary of TMC.
Production of Hino vehicles was discontinued at all three Japanese facilities (Hino, Hamura and Nitta plants) on 14 March. Output of medium and heavy trucks was resumed at a reduced rate at the factories in Hino and Nitta on 25 March, while Hino’s light-duty truck Hamura facility, which includes assembly of Toyota’s Land Cruiser Prado and FJ Cruiser models, was due to restart production, also at reduced volumes on 18 April. “As we get more information, we will communicate it,” said Van Zyl.
More than 2 300 Nissan and Infiniti brand vehicles awaiting shipment for export and Japan showrooms, were damaged by the double disaster. They included nearly 1 300 Infiniti M, EX and FX models headed for North America.
Further damage to buildings and equipment was reported to Nissan’s plants in Iwaki city, Kawachi county, Yokohama City, and Zama City, as well as to buildings and equipment of Nissan affiliate companies in the Kanto region, close to Tokyo, leading also to production being suspended.
In South Africa, Nissan spokesperson Veralda Schmidt said in March the company’s Japanese parent organisation would continue to assess the impact of the earthquake and tsunami on its operations and issue statements when necessary. Nissan’s UD Trucks Corporations’ main facilities are situated in Ageo, on the Saitama prefecture, and only minor damage was recorded to some of its buildings. Two of its employees died in the disasters, while a third remain missing.
Limited production started at UD Trucks Corporation on 28 March and the company said the level of production would ramp up as soon as an alternative supply plan kicked in. However, assembly at UD Trucks Southern Africa’s (UDTSA) plant in Rosslyn, north of Pretoria, was continuing without disruption said CE Johan Richards, adding that the local company remained in contact with the management of UD Trucks Corporation and would keep local dealers and customers informed of any new developments.
Mid-April brought more clarity about the impact with Isuzu Trucks South Africa calling a media conference to explain how the disaster will affect Isuzu vehicle and parts supply in South Africa. COO Craig Uren elaborated on news reports saying production of Isuzu vehicles in Japan was stopped at both the Fujisawa plant in Kanagawa prefecture and the Tochigi plant in Tochigi prefecture on 14 March. The plants were not damaged but those of parts manufacturers were.
Production of aftermarket/spare parts was resumed on 25 March, that of power train production on 1 April, and of vehicle and knock-down kit parts on 5 April. Confirming Van Zyl’s observations, Uren said that not only the first-tier component suppliers had been affected, but also the much smaller suppliers down the line who produced items like colour dyes for plastics components and electronic chips, without which a truck unit could not be completed.
As a result, production of some models in Japan was at 20% and others at 70% capacity, and that parts supply shortages could soon impact on the ongoing operational ability of the plants. This, in turn, would impact on South African sales, to be felt from May onwards, and then most of all during the June to August period.
Uren confirmed that Itsa’s plant in Port Elizabeth was now also operating a four-day working week until the end of May, when the company would enter a difficult 60-day period. “We can build trucks until the end of May, and then, in a third-prize scenario – we have to plan for the worst – we may start running normally again at the end of July,” he said. The company and dealerships were expected to run out of stock at the end of May when the assembly plant would enter the shutdown period, he continued.
On the parts side, Itsa had fortunately doubled its parts order from Japan earlier this year, as it expected an increase in sales on the back of a reduction in parts prices. It would therefore also be able to bridge the supply gap in case of any breakdowns or service demands with its existing parts supply.
Uren indicated that once the supply from Japan was back to normal, there could be bottlenecks to serve the expected pent-up demand. This would mean overtime to even out the situation over the rest of the year for the company’s employees. “We want to protect our labour force and retain the skills we have,” he said.
Uren expects the disasters to cost Itsa about 500 units in new truck sales this year, but that its new vehicle sales for 2011 would still be 10% up on sale volumes for 2010. Itsa’s assessment was the latest as we went to press and it spells a tough time for part of the industry, dealerships and customers looking to buy replacement parts. But hopefully it will be of a short duration. For more clarity, details of what is happening are being updated on manufacturers’ and assembler websites on a continuous basis.
The good news is that, like many other overseas assembly plants, Itsa and other manufacturers will not shed any employees during the shutdown period, but will send those temporarily without work on training courses instead. It’s also good seeing hearts going out to the victims of the disaster, with Daimler having donated 50 vehicles for relief operations, and TSAM dealers and suppliers having started a fund to contribute to relief efforts in Japan. TSAM also supported the South African rescue team working in Japan by providing vehicles.