Quake shuts down Japan's Auto Production

The world watches with bated breath as Japan once again is hit with earthquakes that have, at the time of writing, killed 41 people. The first 6.2-magnitude quake struck the Kumamoto area on Thursday, followed by a second, stronger 7.0-magnitude temblor on Saturday.

As rescue workers rush to reach those trapped under debris, hampered by bad weather, light-vehicle production has all but stopped in Japan. History is, sadly, repeating itself. After the 2011 earthquake, the key manufacturer of microchips, Renesas Electronics Corp, had to temporarily cease operations, and it has done the same after the most recent quakes. If the engine is the heart of a car, then the microchip is the brain; in modern cars, it controls almost everything from fuel injection to interior climate control. The plant also exports the microcontrollers to places outside Japan, so production worldwide could be affected.

Since the 2011 incident, Renesas has built in reinforcements, so damage is expected to be less serious. Nonetheless, the factory’s entire manufacturing line is a “clean room”, and clean rooms are “fragile”, and there is the risk of toxic gas and fluids leakage.

image: Renasas.com

The country’s top two automakers, Toyota and Nissan, have already suspended operations of two plants to assess supplies. Toyota’s Miyata plant produces Lexus vehicles for the US market and Nissan’s assembly plant in Fukuoka had been churning out the Rogue crossover for the North American market, as well as the Murano, the Note, the Teana and the Serena. The Rogue, or X-Trail, as some of us know it, was to be shipped to the US to cater to the growing demand for crossovers, but shipping hadn't started yet. Mitsubishi’s Mizushima plant will operate at only 50% output today and suspend production completely on Tuesday.

The lack of microchips is not the only hindrance. Also affected is Aisin Seiki, which produces, amongst others, sunroofs, door frames, door handles and die-cast engine components for Toyota, and timing chain cases for Mitsubishi.

The automotive assembly industry practises the “Just in Time” approach, and this includes getting parts in small quantities from suppliers to keep inventory low, reduce storage cost and increase efficiency. However, businesses always have to balance cost and disaster-proofing the supply chain. In an article that Reuters ran just end of last month, supply chain expert Takahiro Fujimoto said, "Holding more inventory, or adding another production line as a business contingency measure may improve a company's robustness in the face of disaster, but it won't necessarily improve its global competitiveness."

image: asia.nikkei.com