Tohoku car sector sees signs of growth

by Sayo Sasaki

Kyodo

For Matsushita Toso, a small auto surface treatment company in Tome, Miyagi Prefecture, the shiny black metal parts hanging at its newly introduced line are a sign of the auto industry’s growth and recovery from the March 11 disasters.

The company, with less than 60 employees and located just west of the tsunami zone on the Tohoku region coast, is currently producing about a dozen types of body parts for 30,000 of Toyota Motor Corp.’s high-profile Aqua compact hybrid vehicle per month, after it invested some ¥250 million to double the size of its plant in October to attract the automaker’s orders.

While the company didn’t suffer much direct quake damage, its output was curbed by 60 percent in the first four months after the earthquake, mainly because its client manufacturers were forced to halt production as they were hit by the tsunami and due to the impact of the meltdown crisis at the Fukushima No. 1 nuclear plant. Making such a large investment at the time was a serious risk.

“It was a major bet,” said Tatsuro Sasaki, 60, the company’s sales planning manager, who helped formulate the investment that now appears to be starting to pay off.

The company’s monthly sales swung back to prequake levels and have even risen slightly above them after the new line began operation in October, helped by fresh orders of the Aqua it gained via the new facility.

“We could not just sit and wait until we get orders without having the (production) power necessary. . . . We made the investment in view of Toyota’s production plan,” Sasaki said.

The automaker is scheduled to merge its subsidiaries Kanto Auto Works Ltd., Central Motor Co. and Toyota Motor Tohoku Corp. into Toyota Motor East Japan Inc. in July, and annually produce 500,000 vehicles, including the Aqua, in the region.

The popular Aqua, which is currently being produced only at the Kanto Auto Works plant in Kanegasaki, Iwate Prefecture, garnered 120,000 orders in the first month since its January launch, 10 times the monthly sales target, raising hope for a positive “ripple effect” on Tohoku’s economy.

“The auto industry is one that has a major impact on employment because when plants are built, parts manufacturers gather around them and related works subsequently expand,” said Shigeru Matsumura, an auto analyst at the SMBC Friend Research Center.

“There are great expectations” for the new company, he added.

Amid the strong demand, Kanto Auto Works alone has hired 200 extra workers to beef up production, while related businesses in Iwate are also recruiting more workers, according to the prefectural government.

Iwate has also succeeded in bringing in four auto-related companies from Aichi, Osaka and Hyogo prefectures among the 20 companies it managed to attract this business year, which ends March 31.

“Toyota said it will create a merged company in Tohoku as a production base and has linked it with the disaster-hit region’s recovery, and companies took it as a serious message that the automaker will be firmly rooted in the region,” increasing their interest in the area, said Kazuei Tamotsu, executive director of Iwate Prefecture’s development promotion division.

“If the merged company will stress the use of local supplies in place of parts currently being brought from Nagoya, we are hopeful that there will be many more companies coming in,” he said.

But the ripples don’t spread out evenly. Even with Toyota’s intention to focus on Tohoku, Miyagi prefectural officials and manufacturers say many companies are still cautious about building new plants, as it remains uncertain whether they will get sufficient orders.

“They are going into vacant plants that already exist instead, so that they can leave any time they need to” with minimal damage, said a prefectural official in charge of development promotion.

If the units and number of hybrid models produced in the prefecture were to increase, motor makers and other parts makers would start shifting production to the prefecture with more confidence, he said.

Uncertainty also surrounds the supply chains that were disrupted in the earthquake and tsunami. The major automakers have been reviewing their supply chains after suffering a blow when the quake shut down a key plant of major microcomputer manufacturer Renesas Electronics Corp., but analysts say there are limitations to what automakers can control.

Many have called on their suppliers to hedge disruption risks, but parts manufacturers said it has only been on a request basis.

“While infallible supply chains can be created if (automakers) were to pour in money, they would not be able to survive the global competition” over prices and cost-cutting if they did so, Matsumura of the SMBC Friend Research Center said.

Other factors, such as the strong yen or the government’s subsidy programs for environment-friendly vehicles — which is expected to boost demand by 800,000 units a year but could cripple sales once the round of buying runs its course — are likely to continue affecting the course of the industry.

“It is not something that will be settled in one or two years,” Matsumura said.