3 years later, rebounding from quake, tsunami

Japan's auto industry expanding again, with supply chain double sourced

Japan's auto industry has come back stronger than ever since the disasters of March 11, 2011. Photo credit: AFP PHOTO/JIJI PRESS

TOKYO -- Three years ago, Mazda dealer Eishi Kuramoto scrambled for his life as a mammoth black tsunami washed away two of his stores along Japan’s northern coast.

The March 11, 2011, earthquake-tsunami double punch sent his business back to square one -- and torpedoed the entire Japanese auto industry for much of the year.

The disaster left 18,000 dead or missing. But as Japan marks the three-year anniversary, Kuramoto and the country’s carmakers have rebounded to precrisis highs.

Kuramoto has built a new store next to where one was torn from its foundation by the raging waters. It is nearly four times the size, with eight service bays vs. three before.

He sank 230 million yen ($2.23 million) into rebuilding Lotus Kuramoto Mazda, and it paid off. Sales last year were up 15 percent from 2012 and up 30 percent from 2011.

“We’ve already recovered from the quake and are growing beyond that,” Kuramoto said in a telephone interview from Otsuchi in Iwate prefecture. “Investing in the new store and preparing for its opening was the hardest part.”

Industry, too

The rest of Japan’s auto industry has been equally resilient.

In 2011, with most of the country’s auto plants offline for at least part of the year, Japan’s vehicle production slumped 13 percent to 8.4 million units, including trucks and buses. The tumble came despite a heroic late-year output surge to make up lost ground.

Last year, Japan churned out 9.6 million vehicles, just topping 2010’s prequake result.

Surviving the quake has only made Japan’s carmakers stronger. They finagled new ways of cutting costs and doing more with less. They reinforced their domestic operations to better withstand the next disaster and spread the risk by diversifying operations overseas.

Dual sourcing

More importantly, it spurred a revolution in seeking out dual-sourcing components, so they wouldn’t be forced to shutter plants again when the supply chain suddenly implodes.

That, in turn, has opened the door for more foreign suppliers and new cost competition.

Today, Japan’s automakers are roaring back to record profits. Four companies -- Toyota, Mazda, Mitsubishi and Subaru parent Fuji Heavy Industries -- have forecast record net profits in the fiscal year ending March 31. Each company predicts its net will rise more than 20 percent.

That profit surge has much to do with the yen’s recent weakening against foreign currencies. But Japan’s automakers were still able to absorb billions of dollars in quake losses while battling a yen that was testing historical highs during much of that period.

Mounds of rubble outside the crippled Renasas chip plant in Naka awaited pickup in May 2011 following the March 11 earthquakes. Photo credit: HANS GREIMEL

Corporate casualties

Despite the comeback, corporate casualties of the earthquake remain.

Consider Renesas Electronics Corp., the computer chip maker that stymied global auto production when its key microcontroller factory was damaged by the quake. The company is the biggest maker of the tiny chips that control everything in cars from window controls to gear shifting, with a 43 percent share of the global market, according to Strategic Analytics.

After two straight years of red ink after the disaster, it is finally forecasting a return to operating profit in the current fiscal year. But it has struggled to realign its global business and needed a rescue by a Japanese government-backed investment fund.

Last month, Renesas announced another early retirement program to further reduce its shrinking Japanese work force. The company said there is no upper limit on the number of employees it is trying to shed, but press reports said it aims to cut 1,000. The cutback follows a reduction of 7,511 workers in an October 2012 early retirement offering.

Eishi Kuramoto, pictured at his devastated store site in 2012, has built a new store next to where one was torn from its foundation by the raging waters. Photo credit: HANS GREIMEL

Not yet rebuilt

Back in the quake zone, flattened coastal towns still await rebuilding.

Otsuchi’s wiped-out downtown has hardly changed from the months after the tsunami, Kuramoto said. Roads are cleared, but city leaders can’t decide how or whether to rebuild.

Kuramoto reopened his store next to the old one, fully aware that it was standing in the same dangerous tsunami plain between the ocean and the coast’s steep mountains.

But he said: “There was no other place to get this wide an area of land.”

Still, business is booming, thanks to consumers rushing to buy cars ahead of an increase in Japan’s consumption tax, or national sales tax, in April. By all accounts, sales will drop thereafter.

Says Kuramoto: “That will be the next challenge.”

You can reach Hans Greimel at hgreimel@crain.com -- Follow Hans on Twitter: @hansgreimel

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