Toyota Motor Corp.'s short reign as the world's biggest automotive manufacturer by unit shipment is forecast to end this year, with General Motors regaining the title it lost only a few years ago. In addition to problems related to defects-related recalls and problems in the United States last year, Toyota's shipping ability has also been crippled by the March earthquake and tsunami in Japan.
More than bragging rights are at stake. Toyota's reputation, financial health, and competitive strength have been jeopardized by the disaster, and it may take at least one year or possibly two before the company finally gets back firmly on its feet. Toyota is not alone, though. All Japanese automakers, including Honda, Nissan, and Mitsubishi, are equally at risk, according to Standard & Poor's, which said the companies' supply chains have been compromised by the disaster. Rebuilding and bringing Toyota's globally admired manufacturing system back to its old vaunted status could take years.
In a recent research report, Standard & Poor's downgraded its outlook on six Japanese automakers and parts suppliers to Negative from Stable and warned that the companies, including Aisin Seiki Co. Ltd., Denso Corp., and Toyota Industries Corp., face the possibility of extended products cuts, which could hurt their ability to compete internationally. The outlook downgrade at a time of immense pressure on the supply chain could further complicate the ability of these companies to obtain loans or sell bonds at the favorable rates they have long enjoyed.
The experience of these companies may give us an idea of what is happening behind the scenes in Japan as the high-tech sector tries to figure out the extent to which the earthquake would affect the supply chain. The updates provided so far by most electronics companies that either operate in or source parts and raw materials from Japanese vendors have been lacking in details, with most claiming "no effects" from the earthquake. Is this really possible?
Of all the corporate releases that I have reviewed, only a handful of companies, including Apple Inc. (Nasdaq: AAPL) and Freescale Semiconductor Inc. , have either admitted to some negative implications or warned they expect future disruptions. In its case, Freescale has said it will not reopen its Sendai facility that was "seriously damaged" during the earthquake.
Thankfully, many other electronics facilities operating in the country have been spared, but apparently not the extended supply chain. Japan is still experiencing rolling blackouts, and power supply won't return to pre-earthquake level for some time. This is likely to further complicate efforts to restart manufacturing plants and is seen disrupting transportation or hindering other regular business activities, as the Standard & Poor's report on the automotive sector indicated. The impact is even being felt outside Japan, according to the ratings agency. Here's an excerpt from the Standard & Poor's report:
Supply chain disruptions are posing a greater challenge for Japanese automakers than Standard & Poor's initially anticipated, and have forced virtually all Japanese automakers to significantly cut output in Japan. The impact is also starting to spread to production outside Japan. At most Japanese automakers, overall domestic and overseas output is currently at about 50 percent of initial production plans.
Although we currently expect parts shortages to be largely resolved by around July, we believe that full production is unlikely to recover in the summer due to expected electricity shortages in the Tokyo metropolitan and surrounding areas and a time lag for parts to be delivered to overseas plants.
If Japanese automakers and parts suppliers, including their electronics components vendors, are feeling the pinch so much, what exactly is happening to other segments of the high-tech supply chain? Do we really know?