* Carmaker committed to helping region rebuild
* Popular Aqua hybrid raises hopes for area jobs
* Strong yen, global rivals cloud outlook however
* Aqua plant part of plan to widen production base
By Chang-Ran Kim
KANEGASAKI, Japan, March 9 At this
19-year-old Toyota factory in Kanegasaki, 500 km (300 miles)
north of Tokyo, one shiny Aqua hybrid car rolls off the assembly
line every 75 seconds, 17 hours a day.
With 120,000 orders to fill from just the first month of
sales since late December -- equivalent to 10 months' worth of
targeted sales in Japan -- the frantic pace will only quicken in
the coming months.
Toyota Motor Corp's long-held plan of setting up a
manufacturing base in Japan's northeast coincides with the
region's efforts to rebuild itself up after being ravaged by the
magnitude-9.0 earthquake, tsunami and ensuing nuclear crisis
The popularity of the Aqua and the business it could provide
for ancillary parts makers could be a badly needed shot in the
arm for the northeast, or Tohoku, territory.
On top of the cost of rebuilding the devastated eastern
coast, the frigid Tohoku region is home to an ailing electronics
sector that has long been its cash cow. The strong yen and stiff
global competition have caused huge losses on companies like TDK
Corp and Renesas Electronics Corp, cranking up
the pressure to close factories or shift work overseas, clouding
the outlook for suppliers down the food chain.
"If we lose our main source of income, it would be
devastating for the local economy," said Keiji Sakuma, a
director at the Tohoku Bureau of Economy, Trade and Industry.
"In that sense, the auto industry could be our ray of hope."
Tohoku has attracted a long string of investments from
Toyota, Japan's top automaker, in the last few years.
To diffuse the risk of a massive earthquake hitting its core
manufacturing hub in central Japan, Toyota is on its way to
establishing Tohoku as a third domestic production base, joining
a second one on the southern island of Kyushu.
In 2010, majority-owned subsidiary Prime Earth EV Energy
built a factory in Miyagi prefecture to supply batteries for
Toyota's hybrids and plug-ins. Barely a month before the March
11 disasters, another subsidiary, Central Motor, opened a new
assembly plant nearby to replace an ageing facility near Tokyo.
Later this year, parts unit Toyota Motor Tohoku will open an
engine factory, also in Miyagi, which accounted for more than
half of the 16,000 deaths from the disasters last year.
The Tohoku region will be in charge of developing and
producing as many as 500,000 compact cars for Toyota a year. To
maximise efficiency, Toyota will, in July, merge Central Motor,
Toyota Motor Tohoku, and Kanto Auto Works, which operates the
Aqua plant in Iwate prefecture, into a single company called
Toyota Motor East Japan.
"Thankfully, the Aqua has garnered tremendous support from
customers," Kanto Auto Works president Tetsuo Hattori told
reporters on Friday. "We hope that this car, produced here in
Iwate, will serve as a bright spot for the recovery of Tohoku,"
he said ahead of a rare factory tour that was briefly
interrupted by a moment of silence to mark one year since the
FILLING THE HOLE
With Toyota's business growing in Tohoku, the region's
government expects an estimated 1,200 companies could get new or
more work from the auto industry.
Today, Tohoku's contribution to Japan's transport machinery
sector is just 2.2 percent, compared with the 6 percent it
contributes to the country's gross domestic product and the
12-13 percent that electronic devices provide.
"But once all the parts start moving in the auto sector,
this (2.2 percent) figure should rise precipitously and that
would spread to the electronic devices segment too," said the
economy bureau's Sakuma.
Kanto Auto Works said its Iwate factory alone had hired an
additional 200 contract workers to ramp up Aqua production to
30,000 a month for February and March, bringing total employment
to around 2,500.
Tohoku is also home to an engine factory of Nissan Motor Co
. Japan's No.2 automaker has said it would spend 3
billion yen ($37 million) to reinforce the plant, about 60 km
from Fukushima's crippled nuclear power plant, to guard against
TOUGH WORK AHEAD
While Toyota could prove a godsend for Tohoku, it won't be
smooth-sailing for the automaker. With the dollar trading around
81 yen, Toyota is struggling to make money on exports.
Its huge global operations are cushioning the blow, but the
disproportionate exposure to Japan has made a profit laggard out
Toyota has committed to building 3 million of its 7.5
million vehicles a year in Japan, triple the volumes for both
Nissan and Honda Motor Co. That is capping Toyota's
operating margin at an estimated 1.5 percent in the business
year ending this month, far short of Nissan's forecast of 5.4
percent and Hyundai Motor Co's 10 percent last year.
"When Toyota crafted this plan for Tohoku, the dollar was
probably worth 120 yen, making Japan a low-cost country,"
Goldman Sachs auto analyst Kota Yuzawa said. "Now, Japan is a
very high-cost country and Toyota's got to work much harder."
Kanto Auto's Hattori said even for his lean Iwate plant, 81
yen was tough for exports. The Iwate plant so far ships overseas
one in every five Aquas it produces. The factory's total exports
have halved to 30 percent from pre-financial crisis levels, he
Toyota's executive vice president, Shinichi Sasaki, who
oversees purchasing, is counting on Tohoku's lower land prices
and wages as well as government incentives for new business
initiatives, to help it compete. Toyota hopes to double the
amount of parts it buys in the region to 80 percent as soon as
possible to lower delivery costs, he told reporters last week.
In Iwate, Toyota's ideas for saving money go beyond the
factory floor. A few years ago, workers came up with the idea of
employing goats to feed on the patches of green on site instead
of using manpower and fuel to whack the weeds. During the
winter, 1,500 tonnes of snow is stored to provide cool air
during the summer rather than running the air-conditioning.
For the factory, the pressure will rise after the initial
excitement for the Aqua - the world's cheapest and most
fuel-efficient hybrid to date - runs its course.
The car's popularity in Japan is partly driven by government
subsidies to replace older cars with hybrids and other
fuel-sipping cars. That budget could run out in about half a
"The real test will come in October," Goldman Sachs' Yuzawa
said. "At that point, when demand in Japan pulls back, we'll see
how well the car does in the United States. And if these
exchange rates stick, it's going to be painful."
The Aqua will go on sale as the Prius c in the United States
in the coming months. It will also be sold in about 50 other
countries, mostly in Asia.
Economic sense or not, auto executives say the car industry,
as a rare remaining bright spot in corporate Japan, has an
obligation to do its part for the country, particularly when the
prospects appear so bleak after the triple disasters.
"If we upped and left, who would protect these jobs? Who
will pay the taxes? Who will help with Japan's recovery?"
Nissan's chief operating officer, Toshiyuki Shiga, who also
heads Japan's auto industry lobby, told Reuters last week.
"We have no one to pass the baton to. If we as corporate
citizens of Japan stopped caring, this country would be in a