Japan's car industry braces for prolonged disruption from coronavirus

The coronavirus outbreak has prompted some of Japan’s struggling automakers to order partial plant closures and will likely prolong their troubles with parts procurement in China, forcing them to alter production plans, industry analysts say.

The automakers, mired in a sales slump, are already experiencing delivery delays with some models after taking longer than expected to restart production lines.

With virus fears driving new buyers away from showrooms, the sluggish sales are an added headache. And given that none has factored in the impact of the coronavirus on their earnings outlooks yet due to the fluid nature of the situation, shareholders may soon feel even more pain.

The chaos is proving to be a triple whammy for Japan’s automakers, whose sales have already taken a hit in recent months from last year’s consumption tax hike, typhoons and floods.

“Unlike major earthquakes and typhoons, which are certainly devastating, the difficulty of dealing with this new coronavirus is that we don’t know when the epidemic will end, throwing production and sales plans into disarray,” said Tatsuo Yoshida, senior auto analyst at Bloomberg Intelligence.

“Many automakers, which experienced disruptions in parts supply in the aftermath of the March 2011 earthquake and tsunami disaster, have implemented backup plans and other steps since, but this coronavirus is a threat of a different nature,” Yoshida said.

New vehicle sales in Japan, including trucks and buses, fell 10.3 percent in February from a year earlier to 430,185 units, the fifth straight double-digit monthly fall, partly because the spread of the pneumonia-causing virus kept buyers away from showrooms, recent data by industry bodies showed.

Koichi Sugimoto, senior analyst at Mitsubishi UFJ Morgan Stanley Securities Co., said new car sales in March could fall by around 30 percent, and 10 percent in April alone, as dealers hold back on marketing in response to more customers delaying purchases.

“Sales activities are far from back to normal and this situation could continue even after May,” Sugimoto said.

When data for January showed an 11.7 percent drop in sales, there were expectations within the Japan Automobile Dealers Association that the numbers would pick up in February as Toyota Motor Corp. and Honda Motor Co., the nation’s top two carmakers, launched remodeled versions of the Yaris and Fit, respectively.

Delivery deadlines of some cars, including the compact Fit, have already been missed because of disruptions to parts imports from China, according to Kazuo Kato, chairman of the JADA.

“Demand was expected to rebound in January after falling due to the consumption tax hike, but it appears to have remained weak through February,” said Koya Miyamae, senior economist at SMBC Nikko Securities Inc.

Miyamae said he expected new car sales to start rebounding in February, but the latest data suggests a slow recovery.

In its quarterly earnings report in early February, Toyota released an upbeat projection for the business year ending in March, raising its sales estimate for the year by 30,000 to 10.73 million vehicles. The outlook, however, did not factor in the effects of the coronavirus outbreak.

Nissan Motor Co. has temporarily suspended output at its plants in Tochigi and Fukuoka prefectures, saying required parts could not be shipped out from China.

Honda Motor will reduce vehicle output at two of its domestic plants in Saitama Prefecture for a week or so this month due to concerns about parts supply from China, sources close to the matter said Monday.

Honda has maintained its production levels by increasing output of models for which the company had enough parts in stock.

Suzuki Motor Co. and Mazda Motor Corp. have also faced difficulties in procuring parts from China and have delayed production of some models.

“The current status of disruptions in Chinese manufacturing and logistics due to the coronavirus is only the start,” and the situation will likely get worse, Mitsubishi UFJ Morgan Stanley’s Sugimoto said, adding it is too early to say when and how the crisis can be contained.

With the auto industry being Japan’s largest manufacturing sector, making up 19.0 percent of total shipments by manufacturers and employing 5.46 million people in the country, the government is anxious about the supply chain issues but has no immediate remedy to offer.

“As the car industry is so multilayered with many suppliers, it is difficult to detect and resolve the bottlenecks, which are also different for each and every carmaker,” said Futoshi Kono, head of the automobile division at the Ministry of Economy, Trade and Industry, following a meeting of automakers, suppliers and the government.

“But we want to stay in close communication with Japanese auto (firms) and their suppliers as the situation could suddenly turn for the worse,” he said.