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Domestic auto companies are bracing for the impact of the crisis in Japan on their production, which is likely to hit their local manufacturing operations by April-May this year.
Sources in car market leader Maruti Suzuki and Honda Siel told Business Line that at present production is on track due to an existing stock of parts, though there may be cause for worry when the inventory gets depleted.
Automakers source critical parts such as electronic components from Japanese suppliers, who have either closed shop or have reduced output over the last two weeks following the devastation and power shortage because of the earthquake and tsunami that struck northern Japan.
Maruti Suzuki said that stocks would run till mid-May, as there are also parts in transit from Japan. After that, a lag in production could happen for three to four weeks. The company produces around 5,100 units daily across its two facilities in Manesar and Gurgaon.
“As of now we are fine, but in two weeks' time we expect to have an idea of the impact the component shortage may have. Though we ourselves do not source a lot of components from Japan, we have many Tier II and III suppliers who supply to our main vendors here.
“A shortage on that end may impact our production. There could be a lag of 3-4 weeks production, till Japan picks up. We are also looking for alternate sourcing from Thailand and China,” said the Maruti Suzuki official.
The company, which has an around 50 per cent market share in India, has high levels of localisation of about 85-90 per cent for most models, though this does not account for the Tier II and III supplies. However, SX4 and Gypsy production is likely to be the first to be impacted in case of a component shortage.
Honda Siel, the Indian subsidiary of the Japanese auto major, said that an impact could be felt around May, but it is in the process of calculating the actual levels of shortage. The company imports critical engine parts and electronic components from both Japan and Thailand for models such as the City, Civic and Jazz. The model likely to be most hit is the Accord premium sedan, for which almost 70 per cent of the content is imported.
“We are expecting some impact, but we are calculating the extent of it. We will be fine till the first 2-3 weeks of April as we have inventory and some more components are in transit,” said a Honda Siel official.
On import of completely built units (CBUs), Honda said that future orders for the CR-V from Japanese plants may get delayed, though it has enough stock for current orders. Maruti Suzuki, however, does not expect the CBU orders for the Kizashi sedan from Suzuki, Japan to be impacted.
“Some Suzuki plants in Japan are closed, but it should not impact us. Even if the production for the Kizashi is halved, our order volumes are low, so there will not be any problem in supply,” said another Maruti official.
Recent reports said that the Japanese disaster could lead to a loss of production of around 6 lakh vehicles for global automakers by the end of the month, with more than half the amount already accounted for. More plant shutdowns across the world are expected when the pipeline of parts in stock or transit dries up.
Price pressures
According to an ICRA report, the adverse impact on production is likely over the medium- to long-term. The challenges include disruption in supplies of vehicles and vehicle assemblies, cost pressures arising from appreciation of the Japanese yen, delays in model launches and delays in investment by Japanese players. These would add to existing difficulties arising out of increasing raw materials prices, rise in interest rates and the recently announced increase in customs duty on pre-assembled engine and gearbox or transmission.
Mr Subrata Ray, Senior Vice-President and Co-Head-Corporate Ratings, ICRA, said, “These factors may adversely affect the financial performance of automotive and auto-ancillary players over the short term, given that the OEMs are unlikely to be able to pass on the increase in costs to customers immediately.”
roudra.b@thehindu.co.in
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