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When Kaoru Eguchi, deputy general manager of Nissan's Iwaki plant, saw the damage after the March earthquake, he thought the plant was finished. (Junko Kimura for The Globe and Mail/Junko Kimura for The Globe and Mail)
When Kaoru Eguchi, deputy general manager of Nissan's Iwaki plant, saw the damage after the March earthquake, he thought the plant was finished. (Junko Kimura for The Globe and Mail/Junko Kimura for The Globe and Mail)

After a year of disasters, Japan's auto sector fights back Add to ...

As a resident of eastern Japan for much of his life, Hikaru Kawasumi has lived through more earthquakes than he can count.

So the 59-year-old Nissan Motor Co. Ltd. employee thought the March 11 tremors were routine – until the desk under which he had sought shelter slid away from him.

“I thought the building would collapse and come crashing down,” Mr. Kawasumi recalled as he guided visitors on a tour of the engine plant in Iwaki, Japan, one of a handful of auto plants close to the epicentre.

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The factory did not collapse. It did, however, suffer severe damage, and it would have been worse if not for three employees who rushed to put out a fire that had been started by spilled molten aluminum.

Today, a clock that crashed to the floor on that horrible day is on display in the lobby, stopped permanently at 2:46, the time that marked the start of a two-month shutdown in Iwaki and the beginning of an annus horribilis for Japan’s auto makers.

Most of the industry followed the Nissan plant into a months-long period of shutdowns that spread to Japanese auto makers’ factories around the globe. The quake caused Toyota’s first quarterly loss in two years and profits fell at both Honda and Nissan; all told, the cost of the disaster ran into the billions of dollars.

The lost production, which led to shortages of popular models such as the Canadian-built Honda Civic and Toyota RAV4, accelerated an already disturbing erosion of market share that began in the trough of the recession at the end of 2008. The losses have sliced five percentage points from the Japanese share of global auto sales, cutting nearly 3.2 million vehicles from its manufacturers’ annual sales – nearly the equivalent of Honda Motor Co. Ltd.’s entire global sales in a year.

The economic aftershocks from the quake rippled around the world; the disaster caused havoc in a wide variety of industries. The quake created shortages of electronics, cameras, and other consumer goods – along with the computer chips that control them – that find their way from Japan into almost every household in the world’s richest nations. The quake’s impact was so far-reaching that it contributed to a 0.5-per-cent decline in Canada’s gross domestic product during the second quarter, and, for a time, snuffed out what little momentum remained in the tepid U.S. recovery from recession.

It has taken many months to recover the lost growth. No industry felt the pain like Japan Automotive Inc. – but perhaps no business has made as remarkable a comeback.

In the midst of its gravest crisis, the industry turned to the same principles that had turned it into an international powerhouse, one that has been widely examined as a case study of how to build a global champion. In the days and weeks after the quake, Japanese companies put into play the well-honed doctrines of problem-solving, continuous improvement, root cause analysis and teamwork – extending even to co-operation between rivals that battle each other mercilessly in the marketplace.

After months of silence, even the most badly damaged plants – such as Nissan’s Iwaki factory – sprang back to life and began cranking out engines, transmissions, cars and trucks. And even long-time senior executives who grew up with the Japanese Way of doing things marvelled at the industry’s ability to recover.

The Japan-based companies are back at full production again and dealers in Canada, the United States and elsewhere are stocking their lots with new vehicles.

But in the long run, recovering from the catastrophes of 2011 – the quake and the recent flooding in Thailand, which put a Honda plant under water and disrupted parts supplies for weeks to it and other Japan-based companies – may be the least of the challenges for the auto makers.

Now Japan’s auto makers must fight a tougher battle – halting that decline in market share and winning back consumers who have flocked to the resurgent Detroit Three, insurgent South Koreans and ambitious Europeans, including one German manufacturer determined to be the world’s largest auto maker by 2018.

And the attempt to recover runs up against not only the surging yen, which saps profits, but also the harsh reality that economies around the world are teetering and central bankers are berating consumers about adding to their already high debt burdens.

The comeback bid will be driven by a flood of new models and a focus on new technology, and will shape the competitive landscape for the global automotive sector in 2012 and beyond.

The earthquake

Karou Eguchi, deputy general manager of the Iwaki plant, was enjoying a day off 150 kilometres away when the earth shook that Friday afternoon in March.

The quake caused such traffic chaos that it took him 13 hours to return to his home near the city of 350,000, about 200 kilometres south of Sendai, the port that featured in television news reports with footage of the tsunami pounding ashore.

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