Bloomberg News

Honda Supplier’s Tears Herald Rebirth for Japan Quake-Hit Zone

March 12, 2012

Traffic moves in front of the Honda Motor Co. headquarters in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

Traffic moves in front of the Honda Motor Co. headquarters in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

As the surge of water smashed through the factory wall in northeast Japan a year ago, Takumi Tanaka held on to an air hose to stop being swept away. Four days later, he was back at the shattered auto-parts plant, groping through meter-thick mud studded with uprooted trees.

Tanaka, a 61-year-old manager at Uchida Co., and other employees were searching for molds used to make parts. After finding the dies, they handed them over to another supplier of its biggest customer, Honda Motor Co. (7267)

“Without them, Honda’s production lines would have ground to a halt,” Tanaka said. “Our engineers were in tears.”

Uchida’s sacrifice illustrates how Japan’s auto industry helped the nation’s worst-hit region recover from the March 11 earthquake and tsunami that swept away villages, killing at least 15,800 people. Today, Toyota Motor Corp. (7203) -- Asia’s biggest carmaker -- is expanding production in the Tohoku area, industrial output is nearing pre-quake levels and Uchida is churning out more parts than ever after getting its molds back.

“The recovery was quick, when you see the scale of damage done to suppliers,” said Masatoshi Nishimoto, a senior manager at research firm IHS Automotive in Tokyo. “There’s nothing anywhere that even compares. This was the biggest disaster worldwide for the auto industry.”

The disaster also underscored for Japanese manufacturers how the loss of even a thumbnail-sized part, such as those produced by Uchida, can halt output at factories hundreds or even thousands of miles away. While Uchida had to give up intellectual property for Tokyo-based Honda, within days Japan’s No.3 automaker shipped boots, raingear, supplies and an army of 200 people needed to get its supplier back up and running.

Supplier Confusion

“When we heard the names of some small suppliers that were in trouble, we didn’t even know what kind of parts they produced,” Honda Chief Financial Officer Fumihiko Ike said in an interview in February. “When we tried to paint a car with a certain color, we didn’t realize it was produced only at one company in the Fukushima area.”

It was a similar story at Toyota. The maker of the Camry sedan took four months to restore production to pre-quake levels, partly because it couldn’t track down which of the estimated 1,500 factories that make up its entire supply chain needed to be replaced or helped. Toyota estimates the delay cost the Toyota City-based company about 160 billion yen.

Toyota plans to make its first-tier suppliers that won’t reveal their own suppliers carry more inventory, Executive Vice President Shinichi Sasaki said in an interview. Upon completion of the project this year, Toyota will be able to recover from a major disaster within two weeks, he said.

Thailand Too

Honda was undertaking a similar review of its parts- procurement when it was hit by flooding in Thailand last year, which reinforced the vulnerability of Japan’s manufacturers. With the floods receded, the company is now revisiting the project.

Meantime, the maker of Civic and Accord saloons is strengthening quake-proofing measures at all domestic plants over the next two to three years, Ike said Feb. 8.

When planning to build a new factory in Tohoku, Toyota began by breaking down an engine into hundreds of separate parts. It then gathered suppliers in the region, comprising the six northern prefectures of Japan’s main Honshu Island.

Now Toyota is investing an initial 2 billion yen in the factory in Miyagi prefecture, which is due to open in May. The company also plans to increase production of its new Prius compact hybrid vehicle, known in Japan as the Aqua, in the region and plans to increase its procurement from Tohoku.

Knock-on Impact

“The auto industry has a very broad industrial footprint,” Miyagi Governor Yoshihiro Murai said. “Their growth touches a lot of sub-industries.”

Renesas Electronics Corp. (6723), the world’s biggest maker of microcontroller chips for cars, brought production back to pre- quake levels in September after restarting output in June, said Ryuji Omura, a general manager. The Kawasaki-based chipmaker has begun disclosing inventory information to customers, added quake reinforcements at its factories and has spread out manufacturing to cut risks, according to the company.

Automotive companies aren’t the only ones making changes. Toshiba Corp. (6502), Japan’s biggest maker of flash memory chips, is spreading out production in Japan to help reduce the time it would take to recover from another earthquake. Sony Corp. (6758), Japan’s largest exporter of consumer electronics, has kept most employees at its Tagajo plant in Miyagi at pre-temblor levels by shifting output to facilities unaffected by the disaster, said Mami Imada, a Tokyo-based spokeswoman.

Jobs Lost

Of the 110,000 people who lost their jobs after the quake in Miyagi alone, 60,000 have gone back to work, Governor Murai said. “But 50,000 are still unemployed. That’s why we’re pushing so hard for the promotion of the economic zones.”

Tohoku industrial production rose 45 percent in January from last March, and is 6 percent shy of its level before the earthquake, according to the Tohoku Bureau of Economy. By comparison, nationwide production has climbed 15 percent during that period.

“After a tsunami, what’s important is to draw a line under the episode and start over,” Tanaka said. “We can at least be thankful we didn’t lose even a single employee.”

To contact the reporters on this story: Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net; Anna Mukai in Tokyo at amukai1@bloomberg.net; Masatsugu Horie in Osaka at mhorie3@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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