Japan quake delivers another setback to Toyota Motor’s supply chains and it may get worse

A major earthquake in Japan forces Toyota to suspend production causing another dent on its profit bases significantly

Toyota Motor was obliged to shut down its factories after the earthquake that hit the Tohoku region, northern part of Japan, on the night of March 16 made it difficult to procure parts in addition to the global shortage of semiconductors and the spread of the new coronavirus infection. 

The earthquake is causing additional problems for the already constrained global automotive supply chain straggling to cope with problems caused by the coronavirus pandemic and Russia’s ongoing invasion of Ukraine. The impact of the disruption in the distribution network caused by Russia's invasion against Ukraine is another concern for Toyota Motor being exposed to a severe business environment for the time being. 

Toyota Motor Corporation announced on March 18 that it will reduce production by about 20,000 units due to the suspension of operations at 11 domestic plants. As Toyota's popular SUVs such as RAV4 and Yaris Cross, and small size vehicle, Yaris are assembled at those plants, the closer of those plants may have a serious impact on Toyota’s profits. 

According to Toyota officials, Toyota faces difficulties to procure multiple parts such as shock absorbers from the parts manufacturers in the Tohoku region. At these factories, it will take times to recover from the damage caused by the earthquake after operations were suspended because of leaking from water pipes and misalignment of production lines. 

Hino Motors, a Toyota subsidiary, also announced to stop operating on the production line of the plant for up to three days. The earthquake has proved again that it is not easy for automakers which require nearly 30,000 parts for their productions to eliminate the procurement risks posed by natural disasters and global logistics disruptions.

Toyota also suspended production in China due to new local covid restrictions

Toyota Motor announced on March 14 that it has decided to suspend its operation of the factory in Changchun City in China because the city’s authority implemented a lockdown following the spread of the new coronavirus. It has not been revealed how long the operation will be suspended, but it is certain to damage Toyota's sales in China. 

Toyota Motor produces the RAV4 multipurpose sports vehicle at its Changchun plant. Toyota's Chinese subsidiary said it stopped production in consideration of restrictions imposed by the authorities, the impact of supplier operations, ensuring the safety and security of employees. Toyota said it will resume its operation as soon as safety in the operation is confirmed in the area where the factory is located. 

Changchun's epidemic prevention authorities have banned unnecessary and unurgent outings in all areas of the city. All about 9 million citizens in the city were banned from going out and all business activities were suspended. 

Toyota has already suspended the operation of a joint venture plant in Tianjin City, China January after the new coronavirus Omicron variant was confirmed there. Due to these effects, Toyota's new car sales in China in January decreased by 20% from the same month of the previous year, falling below the previous year's results for the first time in two months. Toyota's February sales increased by 10%, but if the Changchun plant’s shut down is prolonged, it could have a considerable impact on the company’s financial results.

 

Toyota to cut Japanese production significantly from April

Toyota is scaling production at its Japanese factories in April, May and June in order to give its suppliers respite from ongoing crises. In an effort to ease the pain on its supplier base, Toyota plans to reduce production at its Japanese factories during the second quarter of this year. 

Toyota plans to cut production at its Japanese plants by 20 per cent in April, 10 per cent in May, and five per cent in June. The production cut is intended to ease the strain on suppliers who risked being exhausted due to chip and parts shortages. 

It will also reduce global production from April to June from the previous plan. In April, production will be reduced to about 750,000 units, less than its previous plan by 150,000 units. The average global production from April to June is expected to be about 800,000 units a month. 

In April, five factories and seven lines will be shut down for up to 9 days. Due to the shortage of semiconductors and the spread of the new coronavirus infection, the production volume may decline further in the future. 

Since the middle of 2021, Toyota has often made a series of major changes to its production plan due to a shortage of semiconductors and the spread of coronavirus infection. Toyota Motor's suppliers are required to change inventory and personnel plans accordingly every time, which is a heavy burden on those suppliers’ management.