The fallout from the coronavirus, which has caused some Japanese automakers to partially close plants, is likely to prolong both disruption of parts procurement in China and an ongoing sales slump, potentially forcing them to alter production plans in coming months, industry analysts say.
The automakers are already experiencing delivery delays for some models after taking longer than initially expected to restart halted lines.
With virus fears driving new car buyers away from showrooms, sluggish sales are giving the manufacturers an added headache. And given none of the automakers have yet factored in the impact of the coronavirus on their earnings outlook due to the fluid nature of the situation, shareholders may also be set to feel even more pain, too.
(File photo taken in April 2019 shows a Honda Motor Co. car plant in China's Wuhan.)
The virus chaos is proving a triple whammy for automakers whose sales have already taken a hit in recent months from the consumption tax hike in October last year and massive typhoons and consequent floods in fall.
"Unlike major earthquakes and typhoons, which are certainly devastating, the difficulty of dealing with this new coronavirus is that we don't know when the epidemic will end, throwing production and sales plans into disarray," said Tatsuo Yoshida, senior auto analyst at Bloomberg Intelligence, a research group.
"Many automakers, which have experienced disruptions in parts supply in the aftermath of the March 2011 earthquake and tsunami disaster, have implemented backup plans and other steps since, but this coronavirus is a threat of different nature," Yoshida said.
New vehicle sales in Japan, including trucks and buses, fell 10.3 percent in February from a year earlier to 430,185 units, the fifth straight double-digit monthly fall, partly because the spread of the pneumonia-causing virus kept car buyers away from showrooms, recent data by industry bodies showed.
Koichi Sugimoto, senior analyst at Mitsubishi UFJ Morgan Stanley Securities Co., said that new car sales in March could fall by around 30 percent, and 10 percent in April alone, as dealers are holding back on marketing activities in response to more customers putting off their purchase plans.
"Sales activities are far from back to normal and this situation could continue even after May," Sugimoto said.
When data for January showed an 11.7 percent drop in sales, there were expectations within the Japan Automobile Dealers Association that the numbers would pick up in February as Toyota Motor Corp. and Honda Motor Co., the top two carmakers in Japan, launch their remodeled compact models Yaris and Fit, respectively.
Delivery deadlines in Japan of some cars, including the new Fit, have already been missed due to disruptions in parts imports from China, according to Kazuo Kato, chairman of the JADA.
(Photo taken in July 2019 shows an assembly line at a Nissan auto plant in Dalian, northeastern China.)
"Demand was expected to rebound in January after falling due to the consumption tax hike, but it appears to have remained weak through February," said Koya Miyamae, senior economist at SMBC Nikko Securities Inc.
Miyamae said he expected new car sales to start rebounding in February, but the latest data suggests a slow recovery.
In its quarterly earnings report in early February, Toyota released an upbeat projection for the business year ending March, raising its sales estimate for the year by 30,000 to 10.73 million vehicles. The outlook, however, did not factor in the effects of the coronavirus outbreak.
Nissan Motor Co. has temporarily suspended output at its plants in Tochigi and Fukuoka prefectures, saying required parts could not be shipped out from a Chinese port.
Honda Motor will reduce vehicle output at two of its domestic plants in Saitama Prefecture for a week or so in March due to concerns about parts supply from China, sources close to the matter said Monday.
Honda has maintained its production levels by increasing output of models for which the company had enough parts in stock.
Suzuki Motor Co. and Mazda Motor Corp. have also faced difficulties in procuring parts from China and have delayed production of some models.
"The current status of disruptions in Chinese manufacturing and logistics due to the coronavirus is only the start," and situation will likely get worse, Mitsubishi UFJ Morgan Stanley's Sugimoto said, adding it is too early to say when and how the crisis can be contained.
With the auto industry Japan's largest manufacturing sector, making up 19.0 percent of total shipments by manufacturers and employing 5.46 million people in the country, the government is anxious about the supply chain trouble but has no immediate remedy to offer.
"As the car industry is so multilayered with many suppliers, it is difficult to detect and resolve the bottlenecks, which are also different for each and every carmaker," said Futoshi Kono, head of the automobile division at the Ministry of Economy, Trade and Industry, following a meeting of automakers, suppliers and the government.
"But we want to stay in close communication with Japanese auto (firms) and their suppliers as the situation could suddenly turn for the worse," he said.