Auto makers shift track after Japan quake jerk

Look at alternative supply routes to source components.

With Japan still reeling under the March 11 earthquake and subsequent tsunami and nuclear crisis, auto makers in India are looking at other countries where Japanese suppliers have facilities, to source raw materials and components and prevent a slowdown in the world’s second-fastest growing automotive industry.

Though all major Japan-based original equipment manufacturers (OEMs) claim the twin disasters are not likely to affect operations over the next few weeks, concerns persist on raw materials and components, once the buffer stocks are exhausted.

“Some OEMs have initiated talks with facilities of Japanese suppliers in other countries to source components,” said an industry source.

Auto Component Manufacturers Association (ACMA) President Srivats Ram agreed: “A considerable proportion of sourcing is done from suppliers in Japan by Indian automobile manufacturers. Most of them have inventory for the next two to four weeks. However, beyond that contingency plans have to be put in place, if production fails to resume normally in the country.”

“The issue is that even if a supplier is unaffected, the sub-supplier should be able to source materials to him. No one has a clear picture of the extent of damage in Japan. Even if OEMs talk to supplier facilities in other countries, the unit has to have surplus capacity to deliver orders,” said a senior executive at an industry body.

With disruptions likely to persist in rationing power to the industry, after the meltdown of the nuclear plants in Fukushima, production work is unlikely to resume normally for some time in Japan. Delayed consignments of components stand to affect automobile production in India as well.

V G Ramakrishnan, senior director, Frost & Sullivan, said, “Electronic parts for the automotive industry are heavily imported from Japan. Even if factories resume production work, availability of power is a matter of concern for industries there. Companies like Maruti, Honda and Toyota who account for over 50 per cent share in the Indian market, all have suppliers there. If Maruti faces disruption in supply, there would definitely be a slowdown in the automotive sector in India.”

Toshiba, which manufacturers liquid crystal displays for automobiles, has suspended operations at an assembly unit for a month to repair damaged machineries.

A senior executive at a Japan-based auto manufacturer said, “We have several hundred suppliers in Japan. Even if there is shortage of a single component, we would not be able to complete manufacturing a car. It would take us a while to figure out the impact of the disasters on all our vendors.”

According to data available with ACMA, components worth over $1.2 billion are imported by Indian automobile manufacturers every year from suppliers in Japan. India is projected to import components worth around $10 billion in this financial year. Leading auto makers like Maruti Suzuki India (MSIL), Toyota Kirloskar Motor (TKM), Nissan Motors and Honda Siel Cars India source components directly or indirectly through vendors from Japan.

The country’s largest car manufacturer, MSIL, sources 10 per cent of its component requirement for production directly and an additional 10 per cent through vendors from Japan. MSIL Chairman R C Bhargava said, “If the situation does not improve in Japan, we would have to consider air freighting supplies.”

TKM Deputy Managing Director Sandeep Singh said, “We have stocks till the end of this month. We are assessing the situation. There would be no disruption of manufacturing process in India at present.”

Executives at TKM said 21 plants of the parent company, Toyota Motor Corporation (TMC), resumed production on Monday. Toyota had shut all its 28 plants after the earthquake. TKM largely sources engines and transmissions for Etios sedan from TMC.

Honda has once again suspended production till March 27. Nissan Motor Corporation has resumed partial operations at five of its plants in Japan and vehicle production is set to start tomorrow.