Toyota Motor Corp. (TM) announced that it would reduce output by 75% at its North American plants in order to conserve limited supply of parts made in Japan. The automaker has been facing parts shortage resulting from the earthquake and tsunami in Japan on March 11 that damaged many parts supplying plants.
Toyota revealed that all the 13 plants in North America would be closed on Mondays and Fridays until June 3 and would run at half of their normal capacity on Tuesday through Thursday. Further, production will be suspended in the U.S. for the week starting May 30 due to the Memorial Day holiday and in Canada for the week starting May 23 following the Victoria Day holiday.
The production cuts will affect 5 assembly plants and 8 other plants that manufacture engines or other parts, as well as a line at Subaru’s plant in Indiana that produces Camry sedans. Toyota assured that none of the 25,000 workers affected will be laid off at the plants. However, they would need to report for work and utilize the time for training.
Nearly 70% of vehicles sold in the U.S. by Toyota are produced in its North American plants. About 75% of their parts are sourced from roughly 500 suppliers in North America and the rest 15% from Japan. Those parts include electronic and rubber components and a paint additive.
The models manufactured in U.S. include Camry and Avalon sedans, produced in Georgetown, Kentucky, and the Corolla sedan, produced in Ontario.
Toyota resumed production at all its plants in Japan at half capacity from April 18 to 27. The automaker suspended its production at all the 18 plants in Japan from March 14 to 26.
Production resumed at only two plants in Japan since March 28 that build Toyota and Lexus cars. Those plants are assembling a limited number of three hybrid models (Prius, Lexus and Corolla) at a reduced rate. Production at those plants account for only 3%–4% of normal capacity.
Few days back, Toyota stated that it will also halt production at all its plants in Japan from April 28 to May 9. The period is considered as Golden Week holidays when factories would normally remain closed.
Last week, the automaker suspended production in Europe for 8 days due to parts shortage. It halted production at 5 plants between April 21 and May 2. They are auto assembly facilities in Britain, France and Turkey, and engine plants in Britain and Poland. After the stoppages, the plants will be operated at limited capacity in May.
Toyota also announced to cut its output at its Chinese plants. Production at the plants would run at half of normal capacity or it may be adjusted to 30% of the normal capacity if required until June 3. The company also informed that it would bring forward the summer break for plants in China producing auto parts till late April or early May.
The disaster has already resulted in a production loss of 260,000 cars from March 14 to April 8 for Toyota. The automaker is still struggling to procure about 150 types of parts. Previously, it faced shortages of about 500 types of components.
Recently, Moody’s Investors Service – the credit rating agency operated by Moody’s Corp. (MCO) – warned that it may downgrade its credit rating for Toyota on the back of the disaster that has adversely affected the financial results of the company.
Currently, Moody’s sets Toyota’s long-term uncollateralized debt rating at Aa2. The rating agency will review Toyota’s credit rating based on its ability to restore production in Japan.
Almost all the Japanese automakers, including Honda Motor Co. (HMC) and Nissan Motor Co. (NSANY), are plagued by the natural disaster in the country. They have suspended and cut down their production in the wake of plant outages and parts supply shortage.
Recently, Honda extended its weekly production slowdowns at its 11 North American auto plants to May 6 from April 18. The slowdowns could reduce output at its plants by up to 50%. However, the company assured that none of the 21,000 factory workers at the plants will be laid off. More than 80% percent of Honda and Acura parts sold in the U.S. are manufactured in North America. The rest are sourced from Japan.
Meanwhile, Nissan stated that it would use 3 days of “Golden Week” spring holidays in Japan to make up for the lost production. The company’s Oppama and Kyushu assembly plants would work from April 28 to 30 at a reduced rate, while the Tochigi plant would be closed during the holidays from April 28 to May 5.
Toyota, a Zacks #3 Rank (Hold) stock, posted a 39% fall in profit to ¥93.63 billion ($ 1.14 billion) or ¥29.86 (36 cents) per share in the third quarter of fiscal 2011 from ¥153.22 billion ($ 1.86 billion) or ¥48.86 (59 cents) per share in the year-ago quarter. The fall in profit was attributable to lower sales in the Japan, North America and Europe as well as stronger yen.
Consolidated revenues in the quarter dipped 12% to ¥4.67 trillion ($ 56.74 billion) on the back of a 13% fall in global sales volume to 1.8 million units. Vehicle sales declined 21% to 507,861 units in North America, 31% to 402,476 units in Japan and 5% to 207,621 units in Europe. Meanwhile, sales rose 21% to 334,504 units in Asia and 2% to 349,219 units in Other regions.
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