Toyota CEO Akio Toyoda with the now-delayed Prius V.
General Motors has gone to war. Struggling to avoid the sort of parts shortage problems crippling its Japanese rivals, the maker has assigned several hundred managers to three “war rooms,” in Detroit, Tokyo and Shanghai, with the aim of keeping its assembly lines stocked and running.
That’s no easy task in the wake of the March 11 earthquake, tsunami and subsequent nuclear plant disasters that all but shut down the Japanese auto industry for more than a month. Toyota alone lost about 542,000 units of production in March, it revealed this week, and the global sales leader does not expect to have its worldwide production network back up and running at full speed until November or December.
Toyota is by no means alone, the March disaster hitting hard all of the Japanese automakers – and impacting virtually all major car companies worldwide to at least some degree. GM, in fact, was forced to briefly close a plant in Louisiana, with two European plants also affected. But the maker is working hard to ensure even worse problem don’t develop. And if it can keep things running reasonably smoothly, industry analysts say GM will likely end 2011 as the global sales leader, a title it lost three years ago, shortly before its bankruptcy.
“The war rooms stay in touch around the clock and have the authority to move parts around as needed,” explained Tim Lee, head of GM International Operations.
The March 11 natural disaster wiped out much of the northeast coast of Japan before sweeping miles inland. In the mountainous nation, those relatively flat plains served as a manufacturing base for many of the country’s automotive parts suppliers, including Renesas, a chipmaker that provides the critical component for at least a quarter of the electronic controllers used in automobiles around the world.
Renesas doesn’t expect to have its key plant back in operation until mid-June, and there’s a shortage of perhaps 150 to 200 other parts, industry analysts report.
To get a sense of the crisis – and to offer assistance, where possible, GM quickly sent field teams into the areas affected. Told to stock up on water and food, many of them were forced to sleep in their cars in the days and weeks after the disaster.
But, so far, the effort seems to be paying off. Despite the initial concerns of GM’s senior management – U.S. President Mark Reuss warning that, “No one knows the magnitude of the crisis” – the automaker’s plants have weathered the situation surprisingly well, lining up alternate suppliers, where necessary.
And, if anything, that could put GM – and perhaps its Detroit rivals — in a unique position to take advantage of the situation.
Far more heavily dependent on its Japanese keiretsu network, Toyota has not only had to curb production in Japan but sharply curtail operations at its global assembly network, including U.S. factories, which will be closed on Mondays and Fridays and operate half-time the rest of the week through at least early June.
To maintain as much output as possible of key products, such as the hot-selling Prius, the world’s most popular hybrid, Toyota has had to play triage with other, less important models being sacrificed. It has even delayed several potentially promising launches, such as the Prius V, a new hybrid that was to inaugurate a new Prius brand-within-a-brand, as well as the micro-compact Scion iQ.
“The iQ launch will be later than we originally planned,” Scion General Manager Jack Hollis announced at the New York Auto Show last week. A company source later said that the delay is currently indefinite.
The timing of the disaster couldn’t have been worse, coming just two days after Toyota CEO Akio Toyoda announced his “Global Vision,” a plant to push the maker’s global volume to 10 million by mid-decade, from last year’s 8.42 million. If anything, however, the disaster could cost Toyota as much as 1 million units of production in 2011, estimates Jim Hall, of 2953 Analytics – and some observers warn that figure might be conservative.
Considering GM missed regaining the worldwide sales crown by just 30,000 last year – barely a day’s production – the U.S. maker “has a better than odds-on chance of making it to the top again” in 2011, said Joe Phillippi, of AutoTrends Consulting.
Phillippi stressed that simply getting the crown back this year won’t really mean all that much for GM, but the question is whether Toyota will be able to regain its momentum once its parts and production networks are running again.
The maker has certainly had its share of problems, starting in October 2009, when it launched the first of several recalls due to so-called unintended acceleration. Since then, the maker has recalled millions of vehicles for a variety of safety-related problems that have tarnished its image.
What will happen if the maker can’t meet customer demand? Mike Jackson, CEO of the giant AutoNation retail network, has warned inventories of Toyota – and other Japanese brands – could be cut in half in the coming months. That has already translated into a big bump in pricing. Some Toyota models, like the Prius, now command as much as $3,000 more than they did prior to March 11.
Having products like Prius in short supply could actually “enhance pricing and desirability,” at least in the short-term, suggested analyst Hall. But it’s also possible that many buyers, he adds, “are going to walk.”
“We have seen a big deterioration of loyalty for Toyota,” agreed Art Spinella, of Oregon-based CNW Marketing.
CNW research indicates that a sizable share of buyers won’t wait if Toyota can’t provide the vehicles they want within 60 to 90 days.
Further problematic, competitors like GM – as well as Ford, Chrysler and Korean marques Hyundai and Kia – are already picking away at Toyota with an array of new offerings, such as the Chevrolet Cruze and the upcoming 2012 remake of the Malibu, which will take on core Toyota products Corolla and Camry.
Detroit’s automakers “are facing more opportunities than they know what to do with,” says analyst Hall.
That said, Toyota CEO Toyoda has no plans to abandon his Global Vision, even if it is set back a year. Toyota continues to position itself as the worldwide leader, adding new plants like the one in Mississippi, as well as a new network in booming China. And it is hoping to take advantage of the Prius’ reputation by launching that brand-within-a-brand of hybrids.
The Japanese maker has shown a resilience that few other makers can match. So, failing to take maximum advantage of the current reprieve would be a major mistake for GM.
This is very definitely a war, and on the battlefield, complacency can be fatal.