Japanese Parts Paralysis Now Affecting China
“Production at a Nissan Motor plant in China dwindled dramatically two weeks after Japan’s earthquake and tsunami disrupted the supply of key auto parts,” reports China’s People’s Daily, citing “sources with the company.”
In a land where alleged spokespeople of a company get a heart attack and hang up when a reporter calls, those sources turned out to be workers at the Dongfeng Nissan joint venture in central China’s Hubei Province. “We used to assemble 304 cars a day, but today our plan is set at 82,” said a worker.
Dongfeng Nissan had previously said that it had enough parts in its inventory to sustain production for the rest of March, and that supplies for April are uncertain. Warning: Friday is April Fools’ Day.
With most of the Japanese automotive production having been down for two weeks, the pipeline for engines, transmissions etc. should run dry by now in China, and in Asian assembly hubs such as Thailand. In a week or two it should get serious in the U.S., with Europe following thereafter.
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I am reminded of the fable about the grasshopper and the ant. It was only a matter of time before the "just in time" strategy showed its true weakness.
For all the talk of there still being excess capacity in the auto industry, will this parts paralysis take care of the capacity issue or even create shortages in new car inventories? Will some of these plants ever be rebuilt? Put aside the human tragedy for a moment (and only a moment; this is all about the human tragedy) and we are going to see an interesting business and economics case study in the next several months and years.