Second-tier suppliers in Japan face their most difficult struggles yet as car assembly in the country virtually stopped after the March 11 earthquake. Even before this disaster and when sales were high, the margins of the second-tier suppliers were reduced as carmakers such as Toyota squeezed out the maximum value they could in order to fend off competition from foreign rivals and to maintain low prices.
Fumihiro Shimizu, whose family owns an auto parts plant in Japan's eastern coast, said that they’ve never been at a worse point.
He said that the auto industry is “being strangled” and that while the buildings are intact, they’re “economically starving to death." There are several hundred parts suppliers in Toyota City that were devastated during the earthquake.
Making matters worse is the radiation leak at a power plant that idled production and upset distribution in the northeast portion of Japan. A complete recovery isn’t expected until months from now. This means that the $700 billion auto industry in Japan will be affected significantly.
As there is no clear solution and timetable, it means that the survival of smaller suppliers is on the line as they would soon be unable to meet payments. Yusuke Yamakawa, senior manager at Tokyo Shoko Research's Nagoya branch, said that of the 23 working days in March, most of these companies only operated for nine days.