Auto sector took early charge in efforts to get Tohoku back on its feet

by Masatsugu Horie

Bloomberg

As the surge of water smashed through the factory wall near Sendai Airport a year ago, Takumi Tanaka held on to an air hose to stop being swept away. Four days later, he was back at the shattered auto parts plant, groping through meter-thick mud studded with uprooted trees.

Tanaka, a 61-year-old manager at Uchida Co., and other employees were searching for molds used to make parts. After finding the dies, they handed them over to another supplier of its biggest customer, Honda Motor Co.

“Without them, Honda’s production lines would have ground to a halt,” Tanaka said. “Our engineers were in tears.”

Uchida’s sacrifice illustrates how the auto industry helped the region recover from the March 11, 2011, earthquake and tsunami.

Today, Toyota Motor Corp. is expanding production in Tohoku, industrial output is nearing prequake levels and Uchida is churning out more parts than ever after getting its molds back.

“The recovery was quick, when you see the scale of damage done to suppliers,” said Masatoshi Nishimoto, a senior manager at research firm IHS Automotive in Tokyo. “There’s nothing anywhere that even compares. This was the biggest disaster worldwide for the auto industry.”

The disaster also underscored for Japanese manufacturers how the loss of even a thumbnail-size part, such as those produced by Uchida, can halt output at factories thousands of kilometers away.

While Uchida had to give up intellectual property for Honda, within days the automaker shipped boots, rain gear, supplies and an army of 200 people needed to get its supplier back up and running.

“When we heard the names of some small suppliers that were in trouble, we didn’t even know what kind of parts they produced,” Honda Chief Financial Officer Fumihiko Ike said in an interview in February. “When we tried to paint a car with a certain color, we didn’t realize it was produced only at one company in the Fukushima area.”

It was a similar story at Toyota.

The carmaker took four months to restore production to prequake levels, partly because it couldn’t track down which of the estimated 1,500 factories that make up its entire supply chain needed to be replaced or helped. Toyota estimates the delay cost the company about ¥160 billion.

Toyota plans to make its first-tier suppliers that won’t reveal their own suppliers carry more inventory, Executive Vice President Shinichi Sasaki said. Upon completion of the project this year, Toyota will be able to recover from a major disaster within two weeks, he said.

Honda was undertaking a similar review of its parts procurements when it was hit by flooding in Thailand last year, which reinforced the vulnerability of Japan’s manufacturers. With the floods receded, the company is now revisiting the project.

Meantime, Honda is strengthening quake-proofing measures at all domestic plants over the next two to three years, Ike said Feb. 8.

When planning to build a new factory in Tohoku, Toyota began by breaking down an engine into hundreds of separate parts. It then gathered suppliers in the region, comprising the six northern prefectures of Honshu.

Now, Toyota is investing an initial ¥2 billion in the factory in Miyagi Prefecture. It is due to open in May.

The company also plans to increase production of its new Prius c compact hybrid vehicle, known in Japan as the Aqua, in the region and increase its procurement from Tohoku.

“The auto industry has a very broad industrial footprint,” Miyagi Gov. Yoshihiro Murai said. “Their growth touches a lot of subindustries.”

Renesas Electronics Corp., the world’s biggest maker of microcontroller chips for cars, brought production back to prequake levels in September after restarting output in June, said Ryuji Omura, a general manager.

The Kawasaki-based chip-maker has begun disclosing inventory information to customers, added quake reinforcements at its factories and has spread out manufacturing to cut risks, according to the company.

Automotive companies aren’t the only ones making changes. Toshiba Corp., Japan’s biggest maker of flash memory chips, is spreading out production in Japan to help reduce the time it would take to recover from another earthquake. Sony Corp. has kept employee numbers almost stable at its Tagajo plant in Miyagi by shifting output to facilities unaffected by the disasters, said Mami Imada, a Tokyo-based spokeswoman.

Of the 110,000 people who lost their jobs after the quake in Miyagi alone, 60,000 have gone back to work, Gov. Murai said.

“But 50,000 are still unemployed. That’s why we’re pushing so hard for the promotion of the economic zones.”

Tohoku industrial production rose 45 percent in January from last March, and is 6 percent shy of its level before the earthquake, according to the Tohoku Bureau of Economy. By comparison, nationwide production has climbed 15 percent during that period.

“After a tsunami, what’s important is to draw a line under the episode and start over,” Uchida’s Tanaka said. “We can at least be thankful we didn’t lose even a single employee.”

Bank seeks ¥10 billion

MORIOKA, Iwate Pref.
Kyodo

Tohoku Bank, a lender based in Iwate Prefecture, said Monday it will consider asking the government to inject ¥10 billion into its capital base in the 2012 business year, linking the move to a possible rise in loan demand from companies hit by the March 2011 earthquake and tsunami.

Arata Asanuma, president of the bank, told reporters the envisioned application “does not signify the inadequacy of our capital but is a message that we will press ahead with the reconstruction in collaboration with the central government.”

The bank’s group capital adequacy ratio stood at 9.96 percent as of Dec. 31, well above the mandatory 4 percent level for a bank operating only domestically.

Although Tohoku Bank was initially reluctant to seek public capital, it appears to have judged it necessary to enhance its capital base in light of a prospective rise in bad loans to quake-stricken corporate borrowers.

Tohoku Bank posted a net loss of ¥3.5 billion for the business year to last March 31, because it bolstered its loan-loss reserves.