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Automakers rethink supply strategy after quake

On June 5, 2009 a factory worker assembles Prius hybrid vehicles along the assembly line at Toyota Motors' Tsutsumi factory in Toyota, Aichi prefecture.

Kai Ryssdal: Toyota, the world's biggest car company, sold almost 8.5 million cars last year. That's clearly not going to be the case in 2011. The company said today it's going to be at least November before production is back to normal. In Toyota's case, output is down mainly because of damage to suppliers since the earthquake. But only a handful of car companies worldwide have managed to avoid disruptions.

So, as Marketplace's Alisa Roth reports, pretty much everybody is trying to come up with new ways to do business.


Alisa Roth: Hyundai and Volkswagen both got lucky. Neither company buys many parts from Japan, and the components that are made in Japan come from areas that weren't damaged.

Jonathan Browning is CEO of Volkswagen North America. He says just because VW's escaped so far, doesn't mean it's escaped completely.

Jonathan Browning: We're very conscious that a number of layers of the supply base we don't really know the medium to longer term impact.

That's because each big supplier relies on smaller suppliers, who rely on smaller suppliers. Carmakers often don't know where all the parts originally come from.

Today, a Toyota executive admitted the company thought it had multiple sources for some components, only to realize after the earthquake that those suppliers were all relying on the same source.

Michael O'Brian is an executive at Hyundai. He says now carmakers will have to change the way they do business: they'll start paying more attention to the entire supply chain.

Michael O'Brian: To make sure that our suppliers that get components from other suppliers do the same things that we do to ensure that their component can be supplied on an uninterrupted basis.

Beyond worrying about having multiple suppliers for every part, carmakers also realize they have to think about different kinds of risks.

John Henke is a consultant to the auto industry.

John Henke: Even if they're sole-sourcing, having those suppliers have multiple plants in different areas that are at risk for different things.

In others words, hedge for different kinds of disasters -- natural or otherwise.

I'm Alisa Roth for Marketplace.

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