Wednesday March 16, 2011
By TEE LIN SAY
linsay@thestar.com.my
PETALING JAYA: Automotive and aviation companies will be most affected by the earthquake in Japan, analysts say.
However, as long as there is no prolonged disruptions in the workflow or a delay in deliveries, the impact on Malaysian companies should be minimal.
Japanese auto companies operating here are likely to be affected as they source either car parts or completely built up (CBU) units from Japan.
“As the yen is likely to strengthen on the back of the repatriation of funds, the stronger yen will also result in higher import costs and raw materials for auto players.
A Japanese car undergoing inspection before being sent for spray painting at an assembly plant in Shah Alam. An analyst says Japanese auto makers that source either car parts or CBU units from Japan will be most affected by the aftermath of the March 11 earthquake in the land of the rising sun.
“Auto players like Proton and Perodua get their parts from local suppliers. Many of the completely knocked down (CKD) parts are now sourced from Thailand and Indonesia,” said an auto analyst.
She added that Toyota would be most affected, as its CBU units were sourced from Japan. She said the impact on Tan Chong Motor Holdings Bhd was mitigated because the company obtained its manufacturing parts from other countries.
A spokesperson for UMW Toyota Motor Sdn Bhd said there were no interruptions to supply for the Toyota and Lexus models.
“Sales and order taking will continue as usual. Delivery schedules to all customers are not affected presently,”
In Japan, world's largest carmaker Toyota Motor Corp has temporarily suspended production at all plants, including those of its subsidiaries from March 14 until today.
Nissan, Japan's second-largest carmaker, stopped work at its four plants until today, and two other plants until Friday.
“Further decision will be made after that as Nissan continues to assess the extent of damage to its facilities and equipment as well as parts suppliers.
“There is no immediate negative impact on our business as we hold inventory in both CKD and CBU forms,” said Edaran Tan Chong Motor Sdn Bhd executive director Datuk Dr Ang Bon Beng.
Meanwhile, Honda Malaysia managing director and chief executive officer Yoichiro Ueno said its inventory for the four CKD models of Accord, CR-V, Civic, City, and the other four CBU models in Malaysia were sufficient for the next one to two months.
On the aviation front, travellers may avoid going to Japan for the time being on fears of radioactive leaks.
As Japanese tourists accounted for 1.7% of tourist arrivals in 2010, CIMB Research expects a more visible impact on the services and tourism sectors as the Japanese might not be travelling abroad given the dampened consumer sentiment.
A spokesperson for AirAsia X said the airline had not cancelled any of its flights.
“We believe it's important that we commence services to help those who wish to leave Japan, especially Malaysian students there,” said a spokesperson.
“However, our business model is such that most guests have already booked flights in advance. AirAsia X is providing a few options for those who booked before March 11 and travel dates before April 10,” said the spokesperson.
The spokesperson said passengers had the option of either postponing their flights within one calendar month from the original date of travel or apply for a credit shell.
A credit shell is an account created for AirAsia X guests allowing them to use the credit in the account to pay for other future bookings. It is valid for three months.
On the whole, the operations of Malaysian companies are not directly affected by the earthquake in Japan.
“Companies may conserve cash and the overseas units of Japanese companies may send money back home.
“However, over the longer term, we believe Asia including Malaysia may benefit from the diversion of production facilities from Japan as part of the global supply chain risk management,” said CIMB Research head of economics Lee Heng Guie.
He said a 1% decline in Japan's gross domestic product could shave 0.2% point off Malaysia's GDP growth, which could be compensated by other trading partners and the internal growth engine.
Japan is Malaysia's third largest trading partner.
It accounted for 10.4% of Malaysia's exports and 12.6% of Malaysia's imports in 2010.
The major export items were liquefied natural gas, electronics and electrical products, chemical and chemical products, palm oil and crude oil.
Japan is the second largest foreign investor in Malaysia, accounting for 13.9% of total approved foreign manufacturing investments last year.
Meanwhile AP reported from Detroit that two Japanese automakers are scaling back production at North American plants as they assess their ability to get parts from Japan after that country's devastating earthquake and tsunami.
Subaru of America said Tuesday it has suspended overtime at its only North American plant in Lafayette, Indiana. Toyota Motor Corp. also said it was suspending overtime and Saturday production at its 10 plants in the region.
So far, other Japanese automakers say their North American plants are unaffected. Nissan Motor Co., Honda Motor Co., Mitsubishi Motors and Mazda Motor Corp. all say they have not changed their production plans.
But that could change if lingering damage from the earthquake prevents parts shipments. Mitsubishi, for example, has enough parts on hand or en route to operate its Illinois assembly plant through April 3, spokesman Dan Irwin said.
"The situation is fluid, so we continue to monitor our supply chain and logistics," he said.
In Japan, auto companies have shut down production for the rest of the week as they assess damage to plants, ports and roads.
While Japanese automakers with North American plants use locally-based suppliers for many of their parts, others still come from Japan. The U.S. imported $12 billion worth of auto parts from Japan in 2010, from spark plugs to engines, according to the Original Equipment Suppliers Association.
Dave Andrea, the trade group's senior vice president of industry analysis and economics, said some parts had been in short supply prior to the earthquake, including semiconductors, precision bearings and tires. He estimated that most automakers have a three- to four-week inventory of parts in the pipeline.
"Once those start to dry out, that's where you see the shortages in the assembly plants," Andrea said.
Companies can ill afford those shortages. Subaru spokesman Michael McHale said the Indiana plant had been running on overtime because of strong sales of its vehicles. The Outback wagon, which is made at the plant, is currently at a 30-day supply. A 60-day supply is considered ideal.
McHale said he didn't know when overtime will be restored at the plant, which produced 150,000 vehicles last year, or 55 percent of the Subarus sold in the U.S. The plant also makes the Tribeca wagon and Legacy sedan.
Toyota, meanwhile, said the restrictions on overtime and Saturday shifts were designed to conserve Japanese-made parts. About 75 percent of the parts in North American-built Toyotas are supplied locally, but the rest come from Japan.
Toyota spokesman Mike Goss wouldn't specify which parts come are imported, but said the company typically has a two- to three-week supply of them.
Now supplies are uncertain.
"There's some pipeline of parts from Japan to the United States and we're trying not to burn through that too quickly," Goss said.
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