AUTOSHOW-Japanese automakers shield China from supply disruption

Wed Apr 20, 2011 1:36am EDT

* Toyota cuts China output, holds sales forecast for now

* Nissan cancelling China overtime, weekend shifts

* Alternative sourcing of parts not easily accomplished

By Chang-Ran Kim, Asia autos correspondent

SHANGHAI, April 20 (Reuters)- Japanese automakers said the shortage of certain Japan-made parts was starting to affect production in China, but played down fears that sales would also be hit as they seek to keep up with the fast-growing but fiercely competitive market.

Toyota Motor Corp , the world's largest automaker, said on Wednesday it would cut production in China in half until June 3 because of the supply disruptions stemming from the March 11 earthquake in Japan.

"In extreme situations, production rates may be adjusted to 30 percent," the company said on its China website, without providing further details.

Toyota, which also said it would bring forward the summer break for Chinese plants that produce parts to late April or early May, has already slashed output in Japan, Europe and the United States.

Announcing further cuts in U.S. production, by 70 percent from April 26 to June 3, Toyota said on Wednesday it may need to lower its U.S. sales targets if the disruption extended into the summer. [ID:nN19289276]

Despite the supply chain crisis that has paralysed Japanese auto production since the massive earthquake last month, chief executives of all three Japanese carmakers made an appearance at the Shanghai auto show this week, pledging their commitment to consumers in the world's biggest car market.

Vehicle sales in China jumped 32 percent to 18 million units last year, securing the country's top spot for the second consecutive year and sales are expected to double to 40 million in 2020 by some estimates.

STANDING BY CHINA FORECASTS

Toyota, Nissan Motor Co and Honda Motor Co all stood by their 2011 sales targets for China that were set before the March 11 earthquake, even as production cuts and suspensions look set to lead to lower sales this year in Japan, North America and Europe.

Nissan's China joint venture, Dongfeng Motor Co, is cancelling overtime and weekend shifts in China for now and will slow output during its regular shifts, probably until mid-May, according to Dongfeng CEO Kimiyasu Nakamura.

But he said Nissan, Japan's No.2 automaker, planned to make up for lost output in the second half of the business year, which starts in October, by which time most auto companies expect the supply chain problem to be resolved.

"We're not standing down on our sales target of 1.15 million vehicles in China for this year," he told reporters at the Shanghai auto show.

Honda offered a similar stance, saying it was still aiming to sell 730,000 cars in China this year. Production cuts starting from mid-April will not affect customers for now because Honda had enough cars in inventory to last it through the end of June or early July, Honda's China chief, Seiji Kuraishi, said.

TOYOTA WARNS OF INDUSTRY-WIDE DISRUPTION

Toyota also stopped short of changing its sales target, but said the murky outlook for parts supply meant it could not be 100 percent certain of meeting its goal of selling at least 900,000 vehicles in China this year.

"This supply disruption has the potential to affect all automakers, not just the Japanese," said Masayoshi Hori, an executive at Toyota's China arm, Toyota Motor (China) Investment.

Indeed, the shortages, mainly of electronics, rubber and resin-based parts from Japan's northeast, have hit production at many automakers around the world, from Ford Motor Co to PSA Peugeot Citroen , underscoring the complexity and deep links connecting the auto industry's supply chain.

Joe Hinrichs, head of Ford's Asia-Pacific and Africa region, said the U.S. automaker was not facing any disruption in China so far, but that output elsewhere, in countries such as Thailand and the Philippines, was affected.

ALTERNATIVE SOURCES?

With a vast and growing auto parts industry at automakers' disposal in China, auto executives at the Shanghai show fielded many questions about whether they would look for alternative sources for unavailable parts.

Mitsubishi Motors Corp President Osamu Masuko said shortages of parts were concentrated on components such as microcontroller chips like those made by market leader Renesas Electronics .

Spreading the procurement of such high-tech components to several suppliers was often not feasible for cost reasons, he said. Switching to a different source for a component like a microcontroller chip unit would take about a year from development to final testing and was not a viable option, he added.

"In that sense, it's more realistic to pour our efforts into helping those suppliers, like Renesas, restore its disrupted production," he said. "There are many ideas to spread the risk, but the more you think about it, the more elusive a solution is."

Audi CEO Rupert Stadler agreed and said alternative sourcing was not a simple task.

"If that were easy, nobody would have any problems. If there are some missing parts. You cannot switch immediately. You have to invest for tooling and so on," he said.

He said the German luxury brand, owned by Volkswagen AG (VOWG_p.DE), had not seen any impact on its production yet.

Still, further out, the effort to spread risk may have to involve the difficult task of sourcing more components where vehicles are built, Honda CEO Takanobu Ito said.

"Up to now, there's been a concentration of procurement of certain components in Japan. Given the situation now, I think there will be a greater effort to move towards getting parts locally instead," he said. (Additional reporting by Helen Massy-Beresford and Ben Klayman; Editing by Matt Driskill)

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