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UPDATE 2-Toyota struggling to restart output, faces yen rise
March 16, 2011 / 6:48 AM / 6 years ago

UPDATE 2-Toyota struggling to restart output, faces yen rise

5 Min Read

* Toyota says 12 main plants out until March 22 at least

* Yen tests record high vs dollar after quake

* Toyota has largest domestic production ratio, most affected

* Japanese auto stocks rebound after two-day rout (Updates details of plant closures in Japan.)

By Tim Kelly

March 16 (Reuters) - Japanese auto makers, led by Toyota Motor Co , are struggling to restart production amid a shortage of parts and workers, and must now worry about a profit-sapping surge in the yen after Japan's biggest earthquake.

Toyota, the world's No.1 automaker, said on Wednesday it will keep its 12 local assembly plants shut for a further week at least. The plants have been closed since Friday's 9.0 magnitude earthquake unleashed a tsunami which killed at least 10,000 and damaged a nuclear plant north of Tokyo.

Toyota's largest domestic rival, Nissan Motor , said it would restart two plants on Thursday and Friday, but production beyond that remained uncertain. Other plants would take longer to get back on line.

No.3 Honda Motor has also idled plants and on Wednesday reiterated its plans to suspend all production in Japan until at least Sunday.

Analysts said if production starts within a couple of week, excess capacity resulting from the dip in global car sales after the financial crisis of 2008 means the automakers may be able to make up for lost output.

But with the Japanese currency nearing a record high, the profit margin on their Japan-made cars will shrink.

"The direction of the Japanese yen over the next three to six months as a result of this catastrophe will also affect the profitability if Japanese automakers," Fitch Ratings said in a report.

The dollar has fallen 3 percent against the yen since the disaster and is now close to its all-time low. The dollar traded around 80.8 yen on Wednesday, just a yen away from 79.75 in 1995.

Traders and investors are watching for signs of repatriation by Japanese investors and companies because after the Kobe earthquake in 1995, the yen surged to an all-time high against the dollar based on similar flows. So far though most traders have not seen repatriation taking place.

Plants Remain Idle

Toyota still builds 38 percent of its vehicles in Japan, making it the most exposed to the crisis and the resulting rise in the value of the yen. It ships more than half of its domestic output to overseas markets. Nissan produces 24 percent of output in Japan while the figure for Honda is just 22 percent.

Toyota said on Wednesday that it would restart some parts production on Thursday at seven small plants near its home base in Toyota city. The same plants from Monday will also begin shipping car components for assembly overseas.

Yet, until it can restart its main factories lost production, which over the past three days has risen to about 40,000 vehicles will mount.

Elsewhere, it has cut over-time production at plants in Thailand and North America while it assesses the impact on supplies.

Amid a general rebound in stocks Wednesday, Toyota closed up 9 percent, with Nissan up 6 percent and Honda 3.9 percent higher.

Goldman has estimated the profit impact of stopping production for one day would be about 6 billion yen ($74 million) for Toyota and 2 billion yen for Honda and Nissan.

Koji Endo, managing director of Advanced Research Japan in Tokyo, said plants were likely to start resuming production next week and should be back up to full capacity by the end of the month.

"Even if those companies lose say 100,00, 150,000 units until the end of March I think they can recapture that lost opportunity from April," he said

Auto production in Japan is concentrated in central of and southern regions, with few big plants in the worst affected areas. Plant shutdowns could start affecting global automakers and parts suppliers within two weeks due to the integration of the industry.

Hyundai Motors in neighboring South Korea said it doesn't expect the Japanese auto industry's woe to affect it.

"We do not see a major impact from Japan's earthquake because we have secured an inventory of one to two months," a spokeswoman said.

Those Japanese parts makers that do ship products to Hyundai were not directly affected by the earthquake, she added

Hyundai and affiliate Kia Motors will be less affected by parts supply disruption from Japan than their U.S. and European peers because they source most of their components from South Korean firms, Mo Se-jun, an analyst Hana Daewoo Securities, said.

"It remains to be seen whether South Korean carmakers will benefit from the disaster as Japanese carmakers have a two-month car inventory," Mo said. (Additional reporting by Hyunjoo Jun in SEOUL; Editing by Lincoln Feast)

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