Business / Corporate | FOCUS

Japan carmakers brace for supply and demand nightmares due to coronavirus

by Kazuaki Nagata and Masumi Koizumi

Staff Writers

Clouds are gathering on the horizon for Japanese carmakers, their business outlook put at risk by the new coronavirus from China as it threatens to cripple their supply chains in the country, now a global manufacturing powerhouse.

While automakers have been struggling to assess how the outbreak of the pneumonia-causing virus will affect their production and sales, one thing is clear — they will face significant impacts if the situation continues.

“To be honest, it’s impossible to manufacture cars without China,” said Toshiaki Okada, chief financial officer at Subaru Corp., at a news conference Wednesday.

Subaru itself does not have production bases in China but its tier-one parts suppliers run factories there, the firm said.

Okada did not disclose the specific numbers but said Subaru uses “quite a lot” of parts from China to assemble cars at its plants in Japan and the United States.

He added that some suppliers have said they may not be able to provide their products on time due to the idling of their Chinese factories.

In the wake of the outbreak, some Chinese provinces and municipalities have reportedly told local businesses not to resume operations before Feb. 10.

“Our plants won’t be forced to halt operations (due to the lack of parts) for the foreseeable future, but if (the coronavirus) continues to freeze business activities in China, the impact will be unavoidable,” said Okada. “We just don’t know yet when it will happen.”

South Korea’s Hyundai Motor Co. already started to feel the pain of having to idle plants outside of China earlier this week, announcing plans to halt domestic assembly lines after Chinese supply chains were incapacitated, according to media reports.

Many Japanese parts makers run their own production bases in China, so it is expected to take some time for carmakers to grasp how their supplies have been and will be affected, said Arifumi Yoshida, an auto analyst at Citigroup Global Markets Japan Inc.

It will probably be difficult to procure replacement parts in the short term, Yoshida said, but the Great East Japan Earthquake in 2011 prompted Japanese carmakers to diversify supply chains to avoid relying heavily on a single region, he added, noting that in the midterm production is likely to return to normal.

Among Japan’s automakers, Yoshida said Honda Motor Co. was likely to take the biggest hit given that the Tokyo-based firm has plants in Wuhan as well as relying on parts made in China.

Yoshida estimates that a one-month suspension of operations at Honda’s plants in Wuhan and Guangzhou would slash the firm’s net profit by ¥40 billion.

Honda said Friday that it plans to resume operations at its plants in Wuhan on Feb. 14, aiming to restart production the following week. The firm plans to reopen the Guangzhou plants on Monday.

But there is no guarantee that Honda will actually be able to restart production, as the availability of both parts and workers remains uncertain. Honda said its Chinese factories have only three days of stock.

On top of production issues, it’s critical to monitor the impact on consumption, as well, Yoshida said.

“People won’t think about buying cars when their mobility is restricted,” he pointed out.

During a news conference Wednesday, Mazda Motor Corp. Executive Officer Ryuichi Umeshita acknowledged there would “be an impact (on our sales in China) after the Lunar New Year holiday is over.”

The Hiroshima-based automaker is stopping its factory output in China through Feb. 9.

With regard to its inventory of auto parts in China, Managing Executive Officer Tetsuya Fujimoto said the firm has “safe levels of stocks for now,” but that “a prolonged suspension would certainly have a negative impact on our car production.”

“If the supply of parts from China stopped, for example, we would face the need to consider whether another region can compensate,” Fujimoto added.

Japan’s biggest automaker, Toyota Motor Corp., is still gauging how the situation will unfold.

“We are sorry that we are not yet able to assess the impact of the spread of the virus on our profits and business,” Masayoshi Shirayanagi, a Toyota operating officer, told reporters Thursday, when the firm announced its April-December earnings.

Toyota said Friday it had extended the suspension of operations at its four car assembly plants and eight auto parts plants in China until Feb. 17.

The firm raised its full-year consolidated earnings forecast, expecting a ¥100 billion increase, to ¥2.5 trillion, in its operating profit, above previous projections, thanks to the weaker yen and other factors such as cost reduction efforts. But that estimate “does not take into account the potential fallout from the coronavirus,” said Shirayanagi.

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