Monday, May 7, 2012

BOSS Article Part 6

Apologies for the lapse in posting. To continue on the BOSS article series, here is part 6. Here is the link to TOV forum Part 6 thread.

“Dropping Out” in Europe and “Struggling” in the U.S. Nissan (Not Honda) Is Now Toyota’s Rival

Flooding of Honda’s Thai Factory

During the press conference announcing the company’s second quarter results on October 8, Toyota’s Vice President Satoshi Ozawa said something that made everyone doubt his ears. He said, “We want to learn from Nissan Motor.” 

Following the East Japan Earthquake on March 11 and recent massive flood in Thailand, all automakers were forced to stop production or make production cutbacks. Besides the direct damages suffered by their production factories, one major blow was the disruption of parts supply. Component manufacturers and second- and third-tier subcontractors were affected and lost the ability to supply parts. Many Japanese manufacturers have boosted efficiency by thoroughly implementing the Just In Time system (concept of supplying/producing the necessary items by the necessary quantities only when necessary) and carrying hardly any parts in stock. However, this approach backfired.

Recovery after the earthquake was quick and smooth, but the flood in Thailand again raised the same question. Honda and Toyota decided not to announce their business projections and their earnings are expected to be significantly affected. Toyota will resume production at its Thai factory on November 21, but production adjustments will continue for a while. Still, resumption of production points to a positive outlook going forward.

On the other hand, Honda is still in a very difficult situation. Its complete body unit (CBU) plant in Thailand was flooded on October 8 and water is still not receding as of November 14. Since there is sill water, nothing can be planned. It is certain that production in Thailand will remain stopped until after the New Year and the impact will be immeasurable.

Amidst this situation, Nissan Motor who quickly resumed local operations is the only automaker expecting production increases in this fiscal year. Nissan benefited from the alliance with Frances’ Renault having a global supply chain for parts. Nissan was also lucky to have been carrying more-than-normal parts in stock to respond to anticipated production increases reflecting strong global sales. Taking advantage of its good fortune, Nissan is even raising its business outlook for this fiscal year.

The comment by Toyota’s Vice President Ozawa mentioned at the beginning of the article represents the company’s commitment to building a system resistant to risks of natural disasters. Toyota believes a risk-resistant system is needed urgently, even if it means the company must readjust the “Toyota Production System” that has long supported Toyota’s growth.

In terms of luck, Honda had the least of it. Honda is the only one among the big four Japanese automakers whose CBU factory was flooded.
“The Nissan factory was also bracing for water. We build dikes to shut out water, but it came really close. Nothing can be done once water is in, like what happened to Honda.” (Source at Nissan)

Because this is literally an act of God, other manufacturers are making sympathetic comments. Fortunately Honda’s motorcycle factory was spared and has since resumed production, but resumption of operation is not yet in sight at the automobile factory.

How Honda is Different from Toyota and Nissan

One auto journalist let out, “Shouldn’t we acknowledge that Toyota’s rival is no longer Honda, but Nissan?” 

The emerging markets have grown tremendously in recent years. Nissan successfully took advantage of this momentum and is showing the kind of increase in sales volume that surpasses not only Honda, but Toyota as well. This is especially notable in the Chinese market where, in 2010, Nissan ranked first with 1,024,000 units sold among the Japanese automakers. Toyota was second with 846,000, while Honda was behind with only 655,000 units.

It isn’t just in the emerging markets that this is happening. Nissan’s advancement can also be seen in the industrialized nations, especially in the North American market. While Nissan enjoyed a 25.3% increase over the same month of the previous year with 92,964 units sold in September 2011, Honda’s performance was lackluster with 89,532 units, down 8% from the previous year, which finally forced Honda to surrender the fifth position to Nissan. Even with the on-going production adjustments after the earthquake, Honda has lost its shares to Nissan without putting up any fight.

Toyota can’t now help but pay attention to the momentum of Nissan who is well on its way to reach a worldwide sales volume of 5 million units. In contrast, Toyota’s view on Honda has become that of indifference. Koichiro Imoto, the journalist who wrote “Prius vs. Insight (Shogakukan),” says as follows: 

“The hybrid car showdown between Toyota’s “Prius” and Honda’s “Insight” attracted a lot of attention in 2009. Some of the Toyota people, however, seem to be voicing their regrets that the company had taken Honda’s challenge too seriously. As indicated by the number of sales, Insight was not at all a match. It is true, at the time, that there was an air of tension within Toyota against Honda, but it can be said that they no longer show such interest. Toyota’s compact HV to be released in December, “Aqua,” is said to offer fuel efficiency of 40 km per liter and is very much capable of driving out and putting an end to Fit Hybrid.”

Honda, on the other hand, is also expanding its HV line-up, but doesn’t offer much excitement as the company is, to one’s dismay, neck and neck with Mazda’s SkyActiv in terms of fuel efficiency. Despite being no match in the total number of sales, Honda has always battled against Toyota with its technological strength and creative power, and that is why Toyota has regarded Honda as its rival. With technology and creativity falling behind on the curve, however, wouldn’t Honda be losing its competitive edge against not just Toyota, but all manufacturers? If that were to happen, Toyota will then have to become mindful of Nissan who stepped up its presence.

The driving force behind Nissan’s rapid growth is its ability to successfully form alliances with competitors. With the capital tie-up with Renault as a start, Nissan has recently collaborated with such manufacturers as Daimler, Mitsubishi Motors and Russia’s AvtoVAZ, to lessen its internal burden and to become able to offer a wide-ranging line-up from Japanese K-class cars and eco cars such as EV or HV to luxury cars for all markets from emerging to advanced countries.

While also making progress in its own unique technologies, Toyota has formed technological alliances with Tesla Motors and Ford in the U.S. and is expanding its line-up that takes advantage of the technologies of the group companies, such as Daihatsu and Hino, as well as companies like Fuji Heavy Industries.

Set on its policy of individualism, Honda needs to handle everything on its own. As a result, the company is unable to offer an extensive line-up and is forced to have the kind of vehicle composition that disproportionately focuses on the areas of specialty. The reality is that the company is left with no option but to go with compact cars and minivans when there is no chance of winning with a premium line of luxury cars that offers a wide profit margin.

If Honda was to place too much confidence in its “technological strength” forever and believes that it’ll never lose, it’s only a matter of time that the company will have to pay dearly for its mistakes. Now that luck has turned against the company, how will Honda find a way out of the current state where the company suffers from sluggish business in China, while being on the verge of dropping out of the race in Europe and struggling in North America? The end of the individualism may be drawing near.

1 comment:

AMIT KUMAR said...

Buy Cheap Buick Accessories Online

Our online Buick accessories and parts catalogues are reliable and will help in finding whatever Buick parts you are looking for. Buick Accessories serve as the most important part for the car lovers.

Post a Comment