Dow Jones Newswires (Paris) - The potential direct consequences of Friday's Japanese earthquake for Renault SA (RNO.FR) are marginal, but the bigger risk is through diminished earnings at alliance partner Nissan Motor Co. (7201.TO) if Nissan is forced to shut down production lines for a prolonged period.
A spokesman for the French automaker told Dow Jones Newswires that Renault only imports a small number of 3.5-liter gasoline engines from Nissan, and added it was too early to assess the impact of the earthquake on the company.
However Renault owns 43.4% of Nissan, which contributed EUR1.08 billion to Renault's EUR3.42 billion net profit in 2010. And Nissan owns 15% of Renault under the alliance that binds them together.
Earlier Friday, Nissan Motor Co. said it had immediately suspended operations at five factories in Fukushima in the north east, and Tochigi and Kanagawa prefectures, north and south of Tokyo. Small fires broke out at its Tochigi and Iwaki plants but have been extinguished, the company said.
Ian Fletcher, senior analyst at IHS Global Insight's automotive unit in the U.K., recalled that a smaller-intensity earthquake in the northern part of Honshu, Japan's main island, in June 2008 chiefly affected suppliers.
"The automobile manufacturers were pretty quick to get back on their feet back then, but [Friday's earthquake] is a significantly larger event," he said. Fletcher noted that, after carrying out repairs following the quake, Japanese automotive manufacturers stepped up their production by adding extra shifts to catch up on lost orders. Like their counterparts in other countries, Japanese car makers operate on a "just in time" basis with minimal supplies of components to keep down costs.
"They will have enough components for a day or so, but the big question is how badly the supply chain has been affected," Fletcher said. He noted that in 2008 car production was disrupted when a supplier was unable to deliver piston rings.
Nissan has been trying to wind down production in Japan because the strength of the yen has eroded profit margins on exports of cars made in Japan. If Nissan's plants are disrupted for a lengthy period it could affect exports of models like its premium Infiniti range, which are only made in Japan. "That would be a shame, as they're trying to push the Infiniti brand," Fletcher said.
Nissan is also trying to ramp up deliveries of its full electric vehicle, Leaf, though the company is finding it difficult to meet early demand for the compact car that went on sale in the U.S. at the end of last year. Production difficulties due to the earthquake "would be a bit of stumble" for the electric vehicle program at a time when they're trying to introduce its new technology, Fletcher said.
