March 30, 2011 – By John Crawley and Deepa Seetharaman
WASHINGTON/DETROIT (Reuters) - Toyota Motor Corp <7203.T> and Honda Motor Corp <7267.T> took fresh steps to scale back output or reduce orders of some parts in North America as supplies remain disrupted after the March 11 Japan earthquake.
The global auto industry is grappling with disruptions to its production and supply base in the wake of the earthquake, tsunami and nuclear crisis in northern Japan.
About 13 percent of worldwide auto output has been lost due to parts shortages.
Honda said it will cut production at its U.S. and Canadian car plants from Wednesday and Toyota, the world's biggest automaker, told North American dealers to curtail orders of replacement parts to ensure an adequate supply.
"The situation in Japan is still far from stable," said IHS Automotive analyst, Rebecca Lindland.
"We have to prepare. The only thing that the industry can do to protect themselves is to try and anticipate where we can have shortages and try and compensate for the level of uncertainty we're operating in right now."
Toyota told dealers an assessment of inventory and the status of suppliers following the disaster prompted action to ensure enough components for the North American market.
"Damage sustained by certain Japanese parts suppliers will interrupt their normal production," Toyota said in a statement that also noted current inventories are adequate.
Toyota told dealers it has placed 233 parts out of 300,000 -- less than 1 percent -- on so-called controlled allocation in order to "maximize future availability."
A memo sent to Toyota and Lexus dealers on Tuesday and obtained by Reuters said Toyota's supply chain is currently "absorbing fluctuations" in shipments, using existing stock.
A separate memo identified key parts in question, including steering wheel covers, shock absorbers, door fixtures, seals, airbag sensor components, mudguards and certain moldings.
Toyota and Lexus dealers must now fill out special order release forms for those parts and they must be earmarked for a specific customer vehicle. Toyota said it asked dealers to refrain from submitting excess orders.
Japanese automakers' shares rose on Wednesday, with Nissan Motor Co <7201.T> outperfoming the broader market <.N225> with a gain of more than 3 percent to a one-week high. Toyota shares rose 2 percent, while Honda climbed 1.8 percent.
HONDA PRODUCTION CUTS
Honda, which operates plants in Canada and three states in the United States, said temporary changes to the production schedule will vary plant by plant based on the availability of certain car parts. The firm declined to detail the changes in production at individual plants.
Honda has suspended production at its two plants in Japan until at least April 3. Most of the firm's Japan-based parts suppliers have resumed production or are ready to start, Honda spokesman Jeffrey Smith said.
"We are working with a few suppliers who have yet to resume production to reestablish operations and at the same time, we are evaluating additional sources for some parts," he added.
In another sign of pain for Japan's car manufacturers, the Nikkei business daily reported that Nissan <7201.T> expects April output at its China unit to fall 10 percent below target because of supply chain disruptions in Japan.
Dongfeng Nissan Passenger Vehicle Co, a division of the Japanese automaker's joint venture with Dongfeng Motor Group <0489.HK>, will cut production by idling plants on weekends till mid-April, the daily said.
A South Korean unit of Renault <RENA.PA> said on Wednesday it would reduce production at its Busan plant by 20 percent in April because of parts supply disruption the Japan earthquake.
Japanese automakers, including Toyota and Nissan, said on Tuesday it would be some time before they could return to full production.
The damage to some assembly and parts factories by the earthquake in Japan has led to an industry-wide production loss of at least 400,000 vehicles to date in Japan.
With some 500 parts affected, a Toyota spokesman said on Tuesday it was impossible to say when production would resume in full.
RADIATION CHECK OK?
Nissan's Taiwan affiliate, Yulon Nissan Motor Co <2227.TW>, said on Wednesday that it will check radiation levels on all car parts imported from Japan.
The company said that from April 1, parts will be checked for radiation in three stages: before shipment to Taiwan, at the port of arrival and after assembly.
All finished cars will have stickers on their windscreens stating "radiation check OK" if they have levels lower than the 0.2 millisieverts permitted, Yulon Nissan said.
The global car industry could now rethink how it sets up its supply chain, a top industry economist said.
"We may have shared parts across too many models. We may have built regional models with global parts, which means lines will go down here for cars that don't sell anywhere else, really," said Sean McAlinden, chief economist for the Center for Automotive Research, at a conference in Dearborn, Michigan. "And maybe there will be some pull-back because of this particular disaster. Who knows?"
McAlinden said the next effect of the parts shortages will be seen soon in North American ports.
"Remember, there are 30,000 parts to build a car. We might see an impact on practically every production line in North America and most of Europe because of this supply interrupt, this black swan for the global auto industry in Japan."
Black swan is a term coined by author Nassim Nicholas Taleb to describe a surprise event that has a major impact.
(Additional reporting by Ben Klayman in Detroit, Arpita Mukherjee in Bangalore, Jonathan Standing in Taipei and Hyunjoo Jin in Seoul; Writing by Dhara Ranasinghe; Editing by Matt Driskill)