TOYOTA CITY, Japan (Reuters) - For Fumihiro Shimizu and his family-owned auto parts plant in this company town, being a second-tier supplier for Japan's top car makers has never been easy.
Even in the boom years, margins were squeezed as Toyota Motor Corp. and others extracted maximum value from suppliers to fight off competition from overseas rivals and keep prices down.
Now, with the magnitude-9.0 earthquake off Japan's eastern coast halting virtually all car assembly in the country since March 11, Shimizu says his company is facing its toughest test yet.
"It's never been this bad," he said. "The areas hit by the tsunami are a mess, but here the auto industry is being strangled. The buildings are standing but inside, we're economically starving to death," he said.
Shimizu Kogyo is one of hundreds of parts suppliers in Toyota City that have become victims of the earthquake and subsequent radiation leak at a power plant that have disrupted production and distribution in Japan's northeast.
With a full-scale recovery expected to be months away, the cost to Japan's $700 billion auto industry will be significant.
And without a clear exit in sight, many say the upshot will be the liquidation of smaller and weaker suppliers that will be unable to meet their payments.
"Many of these companies worked only nine days out of the 23 working days in March," said Yusuke Yamakawa, senior manager at Tokyo Shoko Research's Nagoya branch, near Toyota City.
"Some financially weak subcontractors will inevitably go under starting in April."
While times are tough and some bankruptcies are expected, few in Japan's Motor City see the risk of a Detroit-style decline.
Detroit's unemployment rate is among the highest in the United States after General Motors Co., Ford Motor Co. and Chrysler shuttered dozens of factories in recent decades as sales fell with increased competition against Asian brands.
Bigger, stronger parts companies in Toyota City could buy up smaller struggling rivals. But without the suppliers at the bottom of the food chain that have long endured low-margin components, Toyota could gradually lose its cozy supply chain that has kept much of its production in Japan.
Although hundreds of kilometers away from the worst-hit regions of the earthquake, tsunami, and radiation, Toyota already appears a changed city.
A shortage of electronics and resin-based components from the region has forced automakers including Toyota and Fuji Heavy Industries Ltd to suspend a majority of their factory lines, resulting in a production loss of at least half-a-million vehicles so far.
The roads are free of the 10-ton trucks that usually carry parts to Toyota's five assembly plants here. Instead, business at pachinko parlours - Japan's most popular form of gambling - is booming. Restaurants are busy with families at lunchtime as factory workers are told to take time off.
Auto parts makers in the city of 420,000 say they have never stopped work for as long as a month. The record so far was two weeks, when Toyota suspended production to work down bloated inventory after the economic crisis blew up in 2008.
About a fifth of the residents in Toyota City work in the auto manufacturing sector.
Analysts say many small and medium-sized companies still have outstanding loans from the financial crisis, meaning banks will be reluctant to lend further to the companies that need it most.
An official at Toyota City's unemployment office said that over the past few days, his office had fielded 40 to 50 calls from companies asking about government support to keep paying wages in the event they had to fully suspend operations.