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REFILE-ANALYSIS-Japan auto recovery may take months; short of parts, power

Published 03/25/2011, 03:56 AM

* Japan auto sector vulnerable to supply chain shocks

* Industry hit as it was recovering from global crisis

* Global auto firms heavily reliant on Renesas Electronics

* Worst case: world auto output down 30 pct in 6 wks-IHS

* Rolling power blackouts to add to quake impact (Fixes typo in para 5)

By Chang-Ran Kim

TOKYO, March 25 (Reuters) - Lost production in the two weeks since an earthquake and tsunami struck northeast Japan tops a third of a million vehicles, and it could be months, rather than weeks, before the country's automakers get back on track.

Modern-day cars have as many as 30,000 parts, 70-80 percent of which are supplied by hundreds of component makers. A single missing bolt can halt assembly lines and set off a chain reaction in the industry's famed just-in-time manufacturing process.

With some 500 parts firms affected in the quake and tsunami-devastated northeast, cutting off supply of electronic parts, resin-based products and more, Japan's auto industry is especially vulnerable to a ruptured supply chain.

"We're in a stage where we can only hope for an incremental improvement," said Deutsche Securities auto analyst Kurt Sanger, who predicted a return to normal operations would take months.

"'Normal' is a long way away," the Tokyo-based analyst said.

Before the disaster, Japan's $700 billion autos industry was just returning to a mild recovery track following a brutal financial crisis that battered car sales worldwide. Manufacturers were cutting costs and also ramping up overseas production to weather a strong yen.

The March 11 quake damaged a factory of Renesas Electronics Corp , a leading supplier of automotive micro control units. Close to a fifth of global auto production relies on products from its Naka factory, in Ibaraki prefecture, Deutsche Securities estimates.

When a 2007 earthquake damaged a plant at Riken Corp , Japan's top supplier of piston rings, all 12 Japanese car and truck makers were forced into a 3-day shutdown.

In a worst-case scenario, global vehicle output could slump 30 percent within six weeks because of the shortage of auto parts stemming from the Japan quake, research firm IHS Automotive has warned.

" It's a completely unprecedented situation," said UBS auto analyst Tatsuo Yoshida.

RUNNING ON EMPTY

Japan's car makers are still building vehicles overseas with whatever stocks they have, but those will soon run out. Toyota Motor Corp this week notified workers and dealers in North America that output there could slow.

At home, the industry has ground to a virtual halt since the earthquake, and automakers including Toyota, Nissan Motor Co and Honda Motor Co have been left to issue almost daily updates on their production plans.

With earnings certain to take a hit and Japanese transport sector stocks slumping 11 percent since the disaster, automakers are reluctant to forecast how long the stoppages could last, saying only that a near-term solution is elusive.

"It's very, very difficult to predict when we will be able to restart production," said Nissan spokesman Toshitake Inoshita.

Some replacement parts and components for vehicles built overseas are being made, but stocks are running low.

Added to that, automakers face rolling power blackouts, a shortage of fuel to truck goods, and a nuclear crisis that has put some suppliers near the damaged Fukushima complex off-limits, such as Nissan's engine factory in Iwaki, Tochigi.

The Japan Automobile Manufacturers Association has set up a procurement committee to centralise information on parts suppliers, and reduce any duplication of effort.

That may help speed up information-gathering, but won't rebuild damaged factories or deliver substitute parts, analysts said.

"Normalising operations requires not only repairs at the vehicle assembly plants, but also the restoration of facilities at a wide range of parts suppliers, public service companies, and distributors," Yoshida of UBS said. (Reporting by Chang-Ran Kim, Editing by Ian Geoghegan)

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