Toyota Motors Likely To See Fall In ProfitsToyota Motors Likely To See Fall In Profits

It's time for world's largest automaker to work on its continuity plan to minimize the hard effect of the earthquake on its earnings

After the earthquakes shook the southern parts of Japan, it interrupted the parts supplies to Toyota Motor Corporation. As a result, the world’s largest automaker is expected to see a decline in its operating profit by around $277 million (U.S. equivalent for 30 billion yen).

The $173 billion organization has cited in a statement that at Toyota’s Kyushu factories, the production shift has been halted and it is likely to be extended to other Japan assembly lines throughout the week. The most devastating earthquake since March 2011 have, in addition to the automaker, halted the production of other companies’ products as well including motorcycle output for Honda Motor Co., engine and parts production for Asian Seiki Co., and chip manufacturing for Mitsubishi Electric Corp. and Renesas Electronics Corp.

The recent earthquake now calls for the “business continuity plans” which the automaker and its national peers may have drafted after the encountering a natural catastrophe around five years ago which highly interrupted the activities of the company for months. The risk is higher for the Japan’s automobile giant as it puts great reliance on the domestic manufacturing in comparison with its peers. Last year, along with its associates, the company was able to manufacture a humungous 4 million –which accumulated to 40% of the worldwide output. Honda Motor Co. and Nissan Motor Co.’s share of domestic auto production were 16% and 17% respectively.

Analysts at Nomura Holdings Inc. said in the report: “Owing to the lessons learned from the Great East Japan Earthquake, the automakers and their suppliers have together built up strong procurement networks for components that can be rapidly restored following disasters.” Therefore, the analysts envision that even after the production is halted for several weeks, the Japanese automaker can promptly think of a way to steer the company into normality again and will likely minimize the hard negative impacts to full year earnings.

In the current year, Toyota Motor’s domestic assembly lines are getting closed down for the second time. In February this year, the company had to withhold the production at the factories as the fire and explosion at a factory operated by Aichi Steel Corp. highly interrupted transmission, engine, and chassis component supply.

The future will tell whether the company was able to pull itself out of the vortex of declining profit. It will also be essential to find out to what extent the company takes notice of draft a sound business continuity plan.