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Toyota, Nissan, GM jump-start production as chip crunch eases

Labor shortage presents potential roadblock to restoring output

Workers assemble a car at a Toyota Motor plant that makes Lexus models in western Japan. (Photo by Shinya Sawai)

TOKYO -- Toyota Motor and Nissan Motor are among global automakers that plan to ramp up output in the near term, sharply reversing course on recent production cuts caused by the chip shortage.

Nissan aims to increase production in the second half by nearly 300,000 units compared with the first half, according to plans shared with suppliers. In discussing the output boost during Tuesday's earnings briefing, Chief Operating Officer Ashwani Gupta cited a clearer view of the semiconductor sourcing situation.

For the full year through March 2022, Nissan revised its global sales outlook to 3.8 million vehicles, down from 4.4 million units. The automaker upgraded its full-year operating profit forecast to 180 billion yen ($1.59 billion) for the year through March 2022, which would represent a turnaround from the 150.6 billion yen loss in fiscal 2020.

Toyota is taking the lead in restoring production, raising output for November by 4% to 10% from a year earlier following a 40% slump in September.

The automaker looks to go further in December by producing at record levels of roughly 1 million automobiles. The 30% year-on-year increase is intended to offset the production cuts in the summer.

Toyota plans to turn out about 850,000 vehicles each month next year, starting in January.

Honda Motor is easing production cuts after a 20% reduction in the first half, equivalent to 535,000 vehicles. Second-half production will be 10% less than the initial plan.

Although Honda is struggling more than competitors in procuring semiconductors, the company will "recover production starting in the beginning of the new year," said Seiji Kuraishi, Honda's chief operating officer.

Honda will return to its initial production plans no later than January, and the full year output will be larger compared with the previous fiscal year.

In the U.S., General Motors is exhibiting an upswing in production.

"We think [the chip shortage] will get better toward the end of the year," said GM CEO Mary Barra.

In October, GM revised its annual net profit outlook upward to $8.1 billion to $9.6 billion, from the $7.7 billion to $9.2 billion range. The company will boost the pace of production to year end.

Ford Motor upgraded its full-year net profit projection as well. The company is "managing our supply chain for short-term sustainable improvements, including semiconductors," said CEO Jim Farley, who sees the chip shortage heading toward further easing toward the end of the year.

"We see the start of stabilization of the chip supply," said Volkswagen Chief Financial Officer Arno Antlitz, who expects finances to improve in the fourth quarter ending December.

Since the semiconductor shortage hit this spring, automakers have been busy building up inventory of the chips and diversifying suppliers. Toyota told its suppliers to expand its semiconductor inventories to volumes that will last five months, up from the three-month standard.

Nissan and its first-tier suppliers are expanding semiconductor inventories to three months' worth of the components from one month's worth.

Parts suppliers are preparing to vastly expand production. Denso's inventory at the end of September is 40% higher than the pre-pandemic level in September 2019. Aisin's inventory jumped by 30% in the same span.

TS Tech, a Honda affiliate that makes car seats, is extensively stocking up on inventory, as is Koito Manufacturing, a maker of headlights.

In Southeast Asia, where much of the supply chain disruptions occurred this summer, manufacturing activities are showing signs of recovery. Furukawa Electric, a Japanese maker of automotive wire harnesses, will return to full operating capacity this month at its Vietnamese facilities.

The chip supply shortages made or broke corporate earnings during the last quarter through September. GM and Honda turned in a lower year-on-year net profit during that period. On the other hand, Daimler and BMW grew profits thanks to their lineup of high-margin vehicle models.

Toyota reported a record net profit of 626.6 billion yen for the July-September quarter, underpinned by the company's strength in procuring components and the rollout of profitable sport utility vehicles.

The question remains whether the automakers will achieve production gains as anticipated.

"Although component production is recovering, finding personnel will be the focus going forward," said Tomoyuki Suzuki, managing director at U.S. consultancy AlixPartners.

The recruitment of workers by big-name automakers is creating a shortage of labor for small to midsized suppliers. Border restrictions are easing in Japan, but it will likely take time before the employment of foreign workers rises to sufficient levels.

The ramped-up production of cars could promote discounting. In the U.S., the average stood at about $2,350 in September, or 40% lower from a year earlier. A resurgence of coronavirus infections could tighten chip supplies once again.

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