Japan's Economy Grinds To A Halt After Earthquake Paralyzes Critical Supply Chains

Tyler Durden's picture

Earlier today Toyota was one of many Japanese companies to announce that it will suspend most car production across Japan as a result of critical supply chain disruptions caused by the recent destructive earthquake and numerous aftershocks. All of the major assembly lines will be shut down across its four directly-run plants, and Toyota will be halting production in stages at other group companies as well.

According to the Nikkei Asian Review, most of the Toyota group in Japan will be effectively shut down through at least the end of this upcoming week, with a production loss of as many as 50,000 vehicles, including brands such as Prius, Lexus, and Land Cruiser.

"Decisions regarding recommencement of operations at plants in Japan will be made on the basis of availability of parts," the company said in its announcement.

It isn't just Toyota.

Numerous other manufacturers also announced extended stoppages due to damage to factories. More details from Reuters:

  • Honda Motor said it would keep production suspended at its motorcycle plant near the quake-hit city of Kumamoto in southern Japan through Friday, though Nissan Motor Co 7201.T said it would resume operations at its plants north of the epicenter from Monday.
  • Sony Corp said production would remain halted at its image sensor plant in Kumamoto, as the electronics giant assessed structural and equipment damage. But the company said it had resumed full operations at its plants in nearby Nagasaki and Oita which also produce the sensors - used in smartphone cameras, including Apple Inc's AAPL.O iPhone.
  • Semiconductor manufacturer Renesas Electronics Corp confirmed it had sustained damage to some equipment at its plant in Kumamoto which produces microcontroller chips for automobiles. Having suspended operations following the first earthquake on Thursday, the chipmaker said it would assess damage at the entire facility before deciding when to resume production.

The earthquakes on Thursday and Saturday, which killed at least 41 people, reflected the vulnerability of Japanese companies to supply chain disruptions caused by natural disasters, and also highlighted the "just in time" philosophy pioneered by Toyota and followed by many others.

The problem is when as a result of a massive unpredictable event, the supply chain grinds to a halt, so does the economy, which incidentally is a topic we covered back in 2012 when we presented a paper on "A Study In Global Systemic Collapse", where we showed just how little margin of error there is in global supply chains, and how quickly the global economy can devolve into pure chaos if an unanticipated, global event were to strike.

To be sure, as a result of the stoppages, Japan's GDP will take a substantial Q2 hit as firms such as Toyota are forced to shut down, dealing yet another blow to Abenomics; the good news is that this event may give U.S. carmakers an opportunity to burn through much of the piling up excess inventory that has been building up over time.

But the best news is for none other than Abe and Kuroda: with Japan soon facing another recession, which for those who are keeping count will be approximately the sixth in the past 7 years...

 

... at least Japan's authorities will have nature to blame it on, instead of the far more devastating than any Earthquake could ever possibly be Keynesian lunacy that is Abenomics.

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kliguy38's picture

definitely BULLISH!!

NotApplicable's picture

I remember watching a JIT automotive supply chain documentary in school back in the 80s, and thinking then just how thin the margin for error was. It was dismissed outright as being inconsequential, as the increases in efficiency more than made up for any potential for disruption, as the suppliers were also switching to such a model, and thus they too could rapidly respond to any changes in demand.

I guess somebody forgot to account for Mother Nature.

 

remain calm's picture

Blame the poor demographics on the spermicide that coats the cities, hence the economic downturn.

zeropain's picture

man if I was japan, I would stop. making shit for rest of the world, just to get fiat.   

JUST FOCUS ON JAPAN INFRASTRUCTURE.   

they need a Japanese trump over there,  Make Japan Great Again! man if every country just focused on their own shit, instead of making shit for other people, maybe shit will be fixed.   but guess that is just insane talk, in this circus world as it shoots for the stars.

knukles's picture

It's the weather.  The electronic universe weather.
Booyah motherfuckers!

Krugster's creaming all over himself.  When will the lies be realized as phantoms, dust-balls and straw-men?

bluskyes's picture

what raw materials does japan have access to, using Yen? It's a big, people-packed volcanic island.

HectorCamachoTrump's picture
HectorCamachoTrump (not verified) bluskyes Apr 17, 2016 3:28 PM

Only the cities are "people packed" stupid.
Japan does a lot of ag (ag=agriculture not an overvalued metal people here jerk off to) exports

zeropain's picture

only thing they have issue with is energy.  but oil is cheap now,  they dont need to make as many cars and tv's to get oil.

abyssinian's picture

F productions!  Just print more money! 

HardlyZero's picture

...print more FIAT !   (edit)

jerry_theking_lawler's picture

No, there are some reasonsable people in industry that put the risk profile into the equation for JIT, and general supply chains.  But when the models work out to not saving any money by reducing inventory, the upper management says to go back and rework the numbers to what is more 'real' and take out any 'once in 10 year' events....

When you do that..then behold, the models say you can reduce inventory and everyone is happy.

But you just took on the risk of a phenonemon happening every 10 years (or possibly more, depending on how/what is modeled) where your supply chain will break.  Figure the cost of this with downtime and costs not to produce, loss of sales, and cost of restarting the supply chains....it adds up, and quick.  Nope, may people konw the 'risks' but the mangement just makes them ignore it so they can get the Qtr/Qtr, and Yr/Yr results to look good for mega bonuses.

Milton Keynes's picture

if you stop keeping inventory, you get a clear one quarter bump, which makes a great bonus as you leave.

 

 

KnuckleDragger-X's picture

A just in time system requires everything to be in the right place, at the right time. If America has any kind of a breakdown like this, it will be much worse. Nobody understands just how delicate it all is, but the direction the real economy is going, we're going to get to find out... soon......

AustriAnnie's picture

Even if there are goods on the shelf, nobody knows how to pay for them anymore without a computer and a little piece of plastic!

This morning I went to the store.  Teenager clerk: "$5.70"

I hold out a $20 bill and 70 cents in coins.  Teenager swivels around that little ipad pay thing so its facing me and says (clearly on autopilot): "You can go ahead and swipe your card"

"I'm paying cash" (He gives me a shocked look, like paying cash is some kind of novel act)

"uh, oh, ok" (I drop change and bill into his hand.  He looks at it, baffled.  The computer display says he is supposed to give me change from a $20, but I've given him $20.70.)

"I have 70 cents if you have 3 fives" (I say, trying to help the poor guy out and give him a hint)

Still confused, he just gave me 3 fives, because I told him to, not because he understood what was going on.

HOW ARE ANY OF THESE SHEEPLE GOING TO MAKE IT WHEN THERE IS NOT AN IPAD TELLING THEM WHAT TO DO?!!

Forget the limits of just-in-time supply chains, these morons don't even know how to operate in a system where you buy things off of a shelf at a point of sale.  They have gone completely digital.  Only the old-timers and the immigrants know how to do business in cash anymore.  

I'm Gen-X/Gen-Y, and suddenly I feel like an old-timer!

skinwalker's picture

Fuck, I'm a millenial and feel like I'm 1,000 centuries old. 

HectorCamachoTrump's picture
HectorCamachoTrump (not verified) AustriAnnie Apr 17, 2016 3:26 PM

Maybe it was his first day?

Maybe his girlfriend died? Or is mother?

Maybe you are an overbearing asshole looking to shit on a pleb?

So many reasons for his reaction, thats why you hate a whole generation of boomer spawn....

boattrash's picture

...or maybe he obtained his math skills (or lack thereof) in our public education system, which has been micromanaged by the Govt for entirely too long.

Milton Keynes's picture

Maybe he's a lesser known Bush cousin...

 

Remember Bush-Jr went to Yale, Harvard and top notch prep schools and it was pretty obvious

he couldn't spell or count.

Big Stapler's picture
Big Stapler (not verified) AustriAnnie Apr 18, 2016 2:23 AM

beam

TheAnswerIs42's picture

Great story.

Almost 20 years ago, a friend and I were buying a sandwich in a small general store in Southern Vermont.

There was a 10% discount on sandwich purchases.

Our bill came to an $15.00, so we gave the clerk 13.50.

It took about 10 minutes to convince them (the clerk and the store owner) what 90% of the total meant.

They absolutely could not do the math in their own mind.

It was so sad, these people were our neighbors and yet so mathematically dumb.

 

 

HectorCamachoTrump's picture
HectorCamachoTrump (not verified) KnuckleDragger-X Apr 17, 2016 3:24 PM

Bullshit.

Bangin7PoundCocks's picture
Bangin7PoundCocks (not verified) kliguy38 Apr 17, 2016 2:37 PM

Small Honda engines are the shizznit! I'll pay extra for those bad boys and they are reliable as a motherfucker!

Squid Viscous's picture

they make great portable gen sets

bluez's picture

CALIFORNIA???

Don't ask. Jost don't ask.

DogeCoin's picture

+400 points on Nikkei.

Where's me jumper's picture

Let's see what the next 24 hours brings...

Winston Churchill's picture

How convenient.

Last months collapse in Japanese exports was attributed to a fire at critical supplier for Toyota.

That critical supplier seem very unlucky.

They can save 'face' this month.

Kirk2NCC1701's picture

MOAR fiat ¥, to mop up that salty, frothy liquidity!

Don't ya know that money printing solves everything?

skinwalker's picture

I always wanted a land cruiser but couldn't afford it. Bought a subaru instead. 

 

Anyway, the japonese are a generally competent and technologically advanced people. Couldn't they devise earthquake resistant infrastructure? 

Never One Roach's picture

Those Land Cruiser SUV's are incredible. Nothing America made in America comes even lose imo. I drove one for over 168,000 miles and it still was strong. Little things broke down but the main engine was solid. Land Cruiser also has the HIGHEST survival rate with head-on collisions.

 

If I could afford one now I'd get another one.

KnuckleDragger-X's picture

You can only harden infrastructure to a certain point, but mother nature has her own rulebook......

zeropain's picture

that's why you focus on infrastructure, that is the most important thing when chaos strikes. no?  what else should they focus on, moving to korea?  

popeye's picture

"Anyway, the japonese (sic) are a generally competent and technologically advanced people. Couldn't they devise earthquake resistant infrastructure?"

 

You sit through a shallow 7+ quake (you sure as hell wont be standing!) and then come back and ask that question. Shallow quake: not much energy dissipation before the waves hit that infrastructure. It feels like NOTHING will remain standing.

 

The Japanese are world leaders in earthquake engineering. If their infrastructure fails to some degree, consider instead how much worse the damage would have been if a similar quake occured elsewhere.

Milton Keynes's picture

Yeah,  it was amazing so much stood up in Tokyo with a Richter 9 quake off shore.

 

Of course with the prevalance of Richter 7, having nuclear reactors is a bad idea

 

popeye's picture

Re reactors, thats one helluva understatement :-)  More like mind-numbingly stupid.

 

 

CheapBastard's picture

Maybe United States will get lucky and the parasites in DC import 15,000 Japanese instead of 15k pool-pooping, rapefugees like Soweto O'Bama wants.

Squid Viscous's picture

just don't let them have driver's licenses...

directaction's picture

Who cares.
Buy a German car such as a made-in-Mexico Volkswagen instead.  

Professorlocknload's picture

But, what about all the broken windows?

the grateful unemployed's picture

in America when we need to massage the GDP numbers we use the weather.

MontgomeryScott's picture

First, we MAKE the weather, THEN we use it.

HUNDREDS and HUNDREDS of flights over Boise, every day they decide to spray. Lines and X's and rings and zig-zags and long, rapid curving lines...

I hear Denver got slammed with snow again this week. Hundreds of flights cancelled there.

Squid Viscous's picture

Krugman just foamed in his pants...

waterwitch's picture

Is that what's on the streets of Japan?

LibertarianMenace's picture

Reliability/"Operational Excellence" are all great until they aren't. System fault tolerance has gone out of style in the enlightened halls of the business mgmt schools. It's probably considered an unnecessary extravagance. I get the feeling that somehow, someday, we're all going to pay for the stupidity of tenured know-it-alls.

RawPawg's picture

my latest Silver delivery was not impacted by this supply chai disruption thingy

there,i fixed it for ya

as a side note,please continue to Pray,Send Positive Vibes,etc,etc their way...they is still Human Beings

InnVestuhrr's picture

Plate tectonics accomplishes what abenomics could not.

Darth Rayne's picture

When things are produced solely for profit, see accountants, then we get fragile systems.

Robust systems deliver a more expensive but identical product.

In this profit obsessed world, guess which systems we have in place?

Running a world based solely on profit is stupidity beyond my imagination. Yet that is what we do. Try thinking about a nicer world. Then do what you can to bring about that world.

https://davidwatkinson.blogspot.co.uk

I am supposed to be a Lord of the Sith, yet here I am channelling Yoda. Where has my anger at the world gone?

 

RawPawg's picture

kid yourself don't,darkside a had also Yoda

kiwimail's picture

Darth, running a political system solely on profit is every bit as stupid!