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Japanese Auto Industry Post March 11

The March 11, 2011 disasters in Japan have caused many problems in the automotive industry. These problems touch every aspect of business both in Japan and around the world. For many years dealers have been reducing parts inventories and working out of each others inventory, but since March 11, 2011 the problem has become more acute. Sometimes parts are not available even at the manufacturers' distribution centers. When this happens the customers' car must sit until parts become available.

These problems are affecting the profits of Japans industry. Consolidated net profit at the nation's top seven automakers is expected to tumble 35% on the year to a combined 851 billion yen in fiscal 2011, its first drop in three years. Plus 17 other industries are experiencing and projecting rather large hits to their pretax profits.

Honda projects a 63% drop in fiscal 2011 net profit because of the strong yen and production disruptions after the March 11 earthquake. These rather large net profit reductions have forced some other changes in their operations. Honda is also adding 3rd shift at their Saitama plant.

As the yen's historic strength makes Toyota's production in Japan expensive, the auto giant outlined a broad reorganization to streamline its domestic manufacturing in an attempt to stay globally competitive without moving the operations out of Japan. Toyota has decided to take full control of two manufacturing subsidiaries. This move it sees as key to coping with the punishing environment facing Japan's manufacturing sector. This takeover will be accomplished through a stock swap by January 2012. Toyota plans to support efforts in the reconstruction of disaster-hit northeastern Japan by expanding production there and creating new jobs. Toyota began weekend operation of factories as part of energy-saving efforts.

For the ninth consecutive month sales of minicars fell in June by 18.3% on the year to 126,804 vehicles. For the 10th straight month domestic sales of new cars, excluding minivehicles, fell in June 23.3% on the year to 225,024 vehicles.

On the bright side most have stated they are increasing production in other markets. Nissan earnings forecast for fiscal 2011 are superior to its rivals because of ample chip inventories. Mitsubishi will be increasing its Thailand output to 450,000 units by the first half of 2012. Fuji Heavy Industries (Subaru) plans to boost production capacity for its Boxer engine by 160% to 820,000 units a year by fiscal 2015. Bridgestone will spend $135 million to increase its production of tires at its South Carolina plant in the U.S. This is creating speculation that they may build another plant in the U.S. Not to be out done Hyundai, the South Korean automaker released a strong forecast for the U.S., predicting sales will top 1 million cars in 2011.

Suzuki will spend about Y50 billion to relocate some of its operations in central Japan, as it looks to mitigate the risk of natural disasters and subsequent nuclear crisis like that in the wake of the March 11 earthquake, tsunami.

Nissan is relocating its regional headquarters from Singapore to Thailand as part of a "radical" reorganization of its regional operations. Nissan will sell electric cars in China, but whether it will make them there will depend on what steps the Chinese government takes to promote the technology.

Exedy Corporation will build a 2 billion yen factory in Thailand by spring 2012 to increase its overall production capacity for automotive clutches in that country by 20% to 1.1 million sets.

Toyota plans to start using electronic billing methods in January 2012 to reduce printing costs and other expenses. This can help its roughly 1,000 business partners with cash flow as they can receive notifications via the Internet and accept payments quickly.

As you can tell every auto manufacturer is in play with changes of some sort. How these changes will affect the industry it is too early to tell. We will have to watch things very close.

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