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As Toyota announces North America, China and Thailand production cuts, a roadmap for a return to normalcy emerges

With Toyota having set its pared-down post-earthquakes and tsunami Japan production schedule all the way until Friday 3 June, it is hardly surprising that the carmaker’s other production locales would soon follow suit. Here is how those plans currently stand:

North America
News releases on both the USA and Global Toyota Newsrooms extend North America production cutbacks beyond the previously-announced Monday 25 April. The new order calls for resumption of production on Tuesday 26 April thru Thursday 2 June, with a pattern of Tuesday/Wednesday/Thursday production at 50% capacity (or 4-hour workdays, according to Reuters) and no production on Mondays and Fridays. In addition, each North American production locale will have a full week’s shutdown within that time period. In Canada it will be the week of Monday 23 May thru Friday 27 May (in conjunction with the scheduled Victoria Day holiday), while in the United States it will be the week of Monday 30 May thru Friday 3 June (in conjunction with the scheduled Memorial Day holiday).

No layoffs are planned during this period, and plant team members will utilize non-production time for training and plant improvement activities. As executive vice president of Toyota Motor Engineering & Manufacturing North America (TEMA) Steve St. Angelo informs us, “We are trying to continue production as much as possible and keep our workforce intact in order to facilitate a smooth transition back to full production when all parts are available.” As to the impact of these extended production cuts, Automotive News‘ Mark Rechtin calculates that production 3 days a week at 50% capacity translates into plants operating at 30% of total capacity each week because of the additional two days of idle time. A Bloomberg article further calculates that Toyota’s sales in the U.S. could drop as much as 10% according to analyst Jesse Toprak, while Toyota spokesman Paul Nolasco cites lost production of 150,000 units in North America from March 11 to June 3.

An official Global Newsroom press release informs us that Toyota’s numerous China joint ventures (many of them in conjunction with the FAW [First Automobile Works] Group) will carry out production at 30% to 50% of normal from Thursday 21 April thru Friday 3 June due to parts supply difficulties. Also, as a consequence of this production adjustment, Toyota-related plants in China will observe the annual July summer holiday period early, in the end of April or at the beginning of May. Bloomberg cites Toyota spokesman Paul Nolasco as estimating a loss of 80,000 units in China from March 11 to June 3. In 2010, Toyota made 1,458,000 units at its plants in North America and 770,000 in China.

Toyota’s trio of Thai manufacturing facilities (the Samrong plant in Samutprakan and the Gateway and Banpho plants in Chachoengsao), whose output includes Yaris, Vios (Belta/Yaris sedan), Altis (Corolla sedan), Prius, Camry (including Camry Hybrid), Hilux Vigo and Fortuner (pickup truck and SUV variants, respectively, of Toyota’s IMV [Innovative International Multi-purpose vehicle] project) models, also imposed production cutbacks. These follow the North American pattern of 50% (or half-day) capacity Tuesday thru Thursday and no production on Mondays or Fridays from Monday 25 April thru Friday 3 June. Reuters adds that Toyota lost the production of about 10,000 units during the first two weeks after the earthquake and analysts expected it would lose more until the company can resume overtime.

What happens in June and beyond?
With many of Toyota’s latest production communiqués ending with some variant of “production plans beyond June 3 will be determined at a later date” or “a decision on production after June 3 will depend on the parts-supply situation”, it was mildly surprising to some pundits that press releases on Toyota’s official USA and Global Newsrooms, plus a statement on the latter from Akio Toyoda included a roadmap of tentative predictions on a return to normalcy. Here is the timetable laid out:

July 2011: Projected ramp up of production in Japan, depending on vehicle model.

August 2011: Projected ramp up of production outside Japan, depending on region and vehicle model. The month’s lag is due to the time required to ship parts from Japan to overseas plants.

November-December 2011: Projected return to normal production, likely accompanied by overtime to make up for previously lost production.

Akio Toyoda, president of Toyota Motor Corporation said in his official press release

“To all the customers who made the decision to buy a vehicle made by us, I sincerely apologize for the enormous delay in delivery. Immediately after the earthquake, Toyota, like others, sent its employees into the disaster zone to join forces with our plants, dealers and suppliers to take steps toward recovery. I, too, visited the affected areas several times. I saw people’s efforts first hand, and I was filled with confidence that their hard work would make possible a quicker recovery of production”.

and was further quoted by Reuters and Hans Greimel of Automotive News as follows:

“By telling dealers the timing of the recovery, they can have a better conversation with their customers. Dealers right now cannot talk to their customers about delivery timing. They can’t talk about specifics. Sales people are having a difficult time…With this many aftershocks, including one last night (Thursday 21 April) in the area around Tokyo, we’ve seen some of the recovery work thrown back to square one many, many times. Because of such things, it can reverse the progress being made. So it is difficult to read what will happen. In that sense it’s difficult to say what the impact on production volumes or earnings will be.”

Greimel’s article also contains these salient passages:

Toyota President Akio Toyoda…outlined the timeframe – despite its being long-range and vague – to help dealers with planning. Until now, they have been hamstrung in pitching their products and handling customers because of looming uncertainty about inventories.

He wouldn’t speculate on how it would impact earnings or about how many units of production would be lost globally, with plants limping along for months to come.

Through the end of April alone, Toyota expects to lose 500,000 units globally.

Shinichi Sasaki, executive vice president in charge of purchasing, said models that share many commonized parts will be first returning to normal production.

Toyoda said the company is considering support to its dealers as sales sag. In Japan, that will entail help in seeking public support or in attracting after-service repair work.

He didn’t outline any plans for dealers overseas. Spokesman Masami Doi said actions to support U.S. dealers would be handled through its local sales arm, Toyota Motor Sales U.S.A.

“The best thing we can do for those dealers is supply cars as quickly as possible,” Toyoda said.

Toyota will also tweak procurement to better guard against supply shocks, Sasaki said. While it will stick with a just-in-time approach of keeping low parts inventories, it will spread risk better.

That will include moving more parts production overseas – especially lower tier suppliers, he said. That way, U.S. parts plants won’t be as reliant on imported subcomponents.

“We have to consider being able to procure the entire part locally,” Sasaki said. “We would like to ask our suppliers to consider setting up shop overseas.”

The Reuters article by Chang-Ran Kim and Nathan Layne notes that Toyota’s updated long-term predictions follow microcontroller chip supplier Renesas Corporation’s announcement of a sooner-than-expected resumption of production on June 15, thus relieving a key bottleneck in the resumption of Japanese (and, inded, worldwide) vehicle production. Several analysts struck a note of cautious optimism, with Deutsche Securities auto analyst Kurt Sanger saying that, “The market was worried about clarity on how long this could last, and Toyota provided a degree of that. It’s positive news”. Tetsuro Ii, chief executive officer of Commons Asset Management, added, “According to what we’re hearing directly from companies, it looks like the recovery on the ground is faster than people think, and Toyota may well restart production even faster than they stated in this announcement.”

Delayed production launches and lost sales titles
This cautious optimism, however, shouldn’t blind us to a number of other setbacks to be expected in the way of delayed production launches and the loss of sales titles that Toyota and Lexus have held for a number of years. Following on the delay of the expected late April Japanese Domestic Market launch of the new Toyota Prius v/Prius+, a Reuters report notes that North America’s Scion iQ launch, already postponed once, faces a second potential delay from its previously expected summer 2011 rollout. More clarity on the launch timing should emerge after the end of Japan’s Golden Week holidays on Monday 9 May, according to Jack Hollis, the vice president of Scion.

Toyota’s title as world’s largest carmaker is likely to be lost for 2011 when all is said and done. As an Associated Press report reminds us, Toyota first claimed the #1 title in 2009, maintaing it in 2010 by a slender 30,000 vehicle margin over #2 General Motors (8.42 million Toyota vehicles vs 8.39 million GM vehicles), and, as noted earlier in this article, Toyota production losses to date already far exceed that margin. In fact, some pundits believe that Toyota may, for 2011 drop all the way to #3, behind not only General Motors, but Volkswagen as well, no surprise given the latter two carmakers’ strength in the behemoth Chinese market.

Also imperiled, as Reuters, among others, remind us, is Lexus’ 11-year run as the leading luxury vehicle brand in the U.S. market. As Mark Templin, Lexus Division group vice president and general manager, noted:

“Originally, we had hoped to do 234,000 vehicles for the year, and we saw an upside depending on what happened in the marketplace even from there, but we know that probably won’t be a reality now. Unfortunately, we just really don’t know what we’re going to be able to build for the rest of this year. Sometime in the first week of May we’ll have a really good picture of our wholesale for May, but that won’t tell us a lot about June and July.”

With Lexus not having led any month in the U.S. this year, even before the earthquakes and tsunami struck Japan, at this point it’s anybody’s guess whether Mercedes-Benz or BMW will take the luxury sales crown this year, and even Cadillac is enjoying something of a resurgence.

Published iniQJapan Earthquake & Tsunami 2011 aftermathLexusScionToyota

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