Japanese Parts Paralysis Likely To Cause Steep Losses

Bertel Schmitt
by Bertel Schmitt

Japan’s carmakers are slowly returning back to normal, hobbled only by unsure supply of parts and sometimes power. It will be slow going and full of surprises. One thing is for sure: The March 11 tsunami will have an ugly effect on carmakers’ books. Combined losses for the Japan’s carmakers and suppliers could “the biggest ever,” surpassing those during 2008 to 2009 financial crisis, Noriyuki Matsushima, an analyst in Tokyo at Citigroup Inc., told Bloomberg.

  • Toyota has the highest market share in Japan, the most production capacity, and the highest exposure. Toyota could post net losses of 155 billion yen ($1.9 billion) in the three months ending June 30, and 241 billion yen for the six months ending Sept. 30, according to the average of analysts’ estimates compiled by Bloomberg.
  • Nissan’s six-month net loss is forecasted much lower at 48 billion yen ($593 million).
  • For Honda, the analysts forecast a 37.4 billion yen ($462 million) profit for the six months ending Sept. 30.

Citigroup’s Matsushima said output reductions by Japanese carmakers may continue until April 2012: “Japan’s automakers will run out of inventory at overseas plants in the second quarter, so figures for that quarter may be lower than those in the first quarter, even as they begin to raise production levels.”

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  • Ronin Ronin on May 03, 2011

    Just In Time inventory is a great concept. Until it's not.

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    • Quentin Quentin on May 04, 2011

      @Quentin Exactly. They determined that the savings of using JIT for decades would be worth the risk of facing heavy losses for a fiscal year when an extraordinary natural disaster hit. You act like JIT was developed without considering that a supplier would not be able to make product. Risk of that supplier not being able to deliver product is definitely evaluated at the time of sourcing. How is having a warehouse full of parts at your factory or a depot somehow perfectly protected from an earthquake and resulting tsunami, btw? Is your warehouse better protected than the nuclear reactors? There is a point when you determine that if things go so badly, you're screwed and you're going to take pretty severe losses. I haven't played GTA in ages, BTW. How is your bulletproof Hummer doing with $4+ fuel? Surely you wouldn't gamble leaving the house without a giant, bulletproof SUV.

  • Trend-Shifter Trend-Shifter on May 03, 2011

    Look at GM stock the past few days... It was up yesterday in a downtrending market. The market says it's a buy and everyone is piling on! Set a trailing stop and let it ride. Don't forget to sell, this is not a "buy & hold" situation, this is a trade. All disclaimers apply, contact your financial advisor first before risking any capital.

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