Toyota auto production to remain high through July 2012

by SR on April 26, 2012

Japan vehicle output to stay at 15.5k/day

Running total of Toyota auto production in Japan to February 2012

On 25 April 2012 an article in the Chubu Keizai (“Chukei”) daily newspaper suggested that Toyota will maintain the current high level of daily output in May, June and July 2012 of 15,500 units. This adds to a growing pile of evidence pointing towards very significant growth in auto production at Toyota in calendar 2012 and for the March 2013 financial year. The image above shows very clearly how much damage was caused to domestic production by the Tohoku earthquake of March 2011. Of course, that situation will be righted in spades in 2012 and Denso and other parts suppliers will be the main beneficiaries. I continue to suggest overweighting auto parts stocks and tyre stocks in preference to auto OEM stocks and machinery stocks.

  • The importance of the naiji 3-month rolling forecast. Toyota’s much-vaunted “Just In Time” (JIT) production system is supposed to deliver the right components to the right place at the right time with only a few hours notice, at least in Japan. Careful thinkers will note that some auto parts take weeks to manufacture and wonder how this simple fact can be reconciled with JIT production. The answer is that although the precise required volume is not determined until the last minute, Toyota gives its supply chain a 3-month rolling production forecast called the “naiji“. (Naiji means “unofficial disclosure” or “heads-up” and is not unique to Toyota.) The naiji represents Toyota’s own best estimate as to what their output in Japan will be a few months down the line and based on this the various suppliers gear up or gear down their own output. Figures are given in terms of vehicle units manufactured per day in Japan. Note: Toyota does not comment officially on the naiji but because it is disseminated to several thousand suppliers the information can be found if you dig.
  • Estimating production from the naiji. To convert a naiji figure to a monthly production figure I take the number of days in the month, subtract weekends and certain holidays then multiple this by the units per day figure. Toyota group companies do not observe many of the frequent public holidays scattered through the year in Japan, but they do observe the three major holidays of New Year in early January, Golden Week in early May and Obon in August. As well as giving workers a rest, this allows maintenance and line reconfiguration teams a chance to work. (At other times the Toyota group works, so if you phone Toyota or one of its subsidiaries on a national holiday somebody will pick up the phone and in the background you will hear the buzz of normal office operations.)
  • The rolling forecast is assumption, not fact. Taking the 15.5k per day figure given in the Chukei article, and based on 22 working days in July 2012, output in Japan for Toyota should be in the region of 341k units. Let me say again, this is not the final figure: it can be adjusted up or down. Here’s an example. In February 2012 Toyota manufactured 346k units in Japan, which based on 21 working days equates to nearly 16.5k units per day. That is a very high figure, easily topping the 15k/day naiji figure for February 2012 forecast by Toyota back in November 2011. This shows that the naiji is just a guide and that the production machine can and does work round it.
  • Rolling forecasts likely to surprise on the upside. In theory, a naiji of 15.5k/day suggests output of 341k in March 2012 (we should have the figure within a couple of days), 310k in April 2012 assuming that 30 April is a holiday and 294.5k in May 2012. Then June would be 325.5k/day and July would be 341k/day. However, because Toyota is struggling to meet strong demand in the US and in Japan at the moment, I expect them to push quite a bit harder, just as they did in February 2012. Accordingly, I think March could be higher than February and that April will come in between 310k and 340k per day, with May also not falling as much as the naiji would imply. Still, as I note above the major holidays are vital times for Toyota, especially when there are many new models coming through, as they allow engineering teams to set up new lines or reconfigure old ones. So, May should really dip compared to April, but probably only by a few percent month-on-month, compared to a more typical figure of -10% MoM or so.

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