KANEGASAKI, Japan – This small city in northeastern Japan became a focal point last spring as the Japanese auto industry began its recovery from a massive earthquake and tsunami.

Scores of other cities, towns and villages throughout the region have similar stories to tell. But Kanegasaki, a throwback to an older era with rice paddies off the main drag and small family-owned businesses the norm, is home of a handful of auto plants that suffered structural damage on the afternoon of March 11, 2011. It is the second closest city to the earthquake’s epicenter.

Most of the needed repairs at the Kanto Auto Works plant, the city’s largest employer and a Toyota subsidiary, were made in less than a week. The quake had cracked walls, collapsed ceilings and shifted production equipment out of place.

The factory would stay closed for another month, finally resuming single-shift operations April 18. Then, surprising industry analysts, output jumped to nearly 90% of pre-quake levels by mid-June, and by September, operations were back to normal.

“Recovery came quicker than expected, not just at Kanegasaki but at almost all vehicle and component plants in Japan,” says Kohei Takahashi, analyst at JP Morgan Securities Japan, who adds, “The supply chain has been fully restored.”

Toyota, more than its Japanese competitors, experienced supply-chain difficulties because of the size and complexity of its vehicle lineup: some 70 models ranging from luxury Lexus cars and trucks to the compact Yaris, each available in three to four grades and many shipped to more than 100 markets, both left- and right-hand drive.

Four weeks after the disaster, Makoto Kurosawa, senior materials analyst at CLSA Asia-Pacific Markets, told WardsAuto Toyota was just learning the names of its Tier 4 and 5 chemicals and resins suppliers.

German paint supplier Merck produced Xirallic, a specialty pigment for pearl-luster paints, solely at its Iwaki plant in Fukushima prefecture, supplying auto makers worldwide, including Ford in North America and Toyota in Japan.

The facility was closed for nearly two months, resuming full operations in June 2011. Management since has taken steps to establish a second production base at its headquarters plant in Darmstadt, Germany.

Fujikura Rubber was another casualty. It was forced to relocate a rubber-mixing plant from inside the 12-mile (20-km) exclusion zone surrounding the damaged Fukushima Dai-ichi nuclear power plant to a nearby Denso facility outside the zone. The operation was out of commission for three months. Compounds produced at the plant are used in making gaskets, seals and brakes.

In all, some 500 suppliers reported facility damage, including more than 300 directly or indirectly servicing Toyota. Hardest hit were those on the coastline, in particular petroleum refiners and chemical processors, from Sendai in the north to Chiba in the east, a span of 350 miles (560 km).

The port of Kashima’s sprawling industrial zone, adjacent to nearly six miles (10 km) of waterfront, was overrun by 15-ft. (4.5-m) waves, halting operations of more than 10 producers of resins, intermediates and specialty chemicals.

Top of the list in terms of impact on the supply chain was Mitsubishi Chemical, which lost two 400,000-ton (363,000-t) ethylene plants for nearly 10 weeks. The plants, accounting for nearly 10% of ethylene capacity in Japan, resumed operations in late May. They didn’t reach pre-quake production levels until the beginning of September.

Downstream manufacturers of door- and window-trim molding, brake lamps and seats were able to find alternative material sources relatively quickly, because these components generally are made from commodity grades. Even so, it took two to three months to get back up to speed.

All 22 Toyota Boshoku plants (including affiliate operations), for example, faced shortages of unspecified materials in April and May. By June, Toyota’s main supplier of seats and door trim was back at 90% of pre-quake production levels.

Toyota Boshoku operates a satellite plant inside Kanto’s Kanegasaki grounds, where it makes seats, fender liners and engine undercarriage shields. The supplier also produces seats at a factory adjacent to Central Motor’s year-old car plant north of Sendai in the village of Ohira, Miyagi prefecture.

Central, formerly a subsidiary of Kanto Auto Works, has been a Toyota subsidiary since 2008. The Ohira plant, located only 80 miles (128 km) from the earthquake’s epicenter, incurred more serious structural damage than Kanto’s facility in Kanegasaki.

Suppliers in other port cities experienced similar or greater damage than those at Kashima.

“But in the end, our biggest problem was electronics,” Toyota Executive Vice President Takeshi Uchiyamada says, referencing supplier Renesas Electronics, whose Hitachinaka plant effectively was down for half a year. At the time of the quake, the facility provided one-fourth of the auto industry’s microprocessors.

Others affected included Fujitsu Semiconductor, Toshiba Mobile Display and Primearth EV Energy, a Toyota subsidiary making hybrid batteries in Miyagi prefecture. But the Renesas shutdown had the biggest impact.

The Hitachinaka facility produced microcontrollers for braking, steering and stability-control modules, literally hundreds of different variants, each line-certified. It also made front- and rear-lighting and vehicle communications systems. Customers included every auto maker in Japan, plus many overseas, and Tier 1 suppliers such as Denso and Aisin Seiki.

Located 75 miles (120 km) north of Tokyo, the plant suffered extensive damage to trunk cables, vinyl chloride exhaust pipes and clean rooms from the earthquake. Unable to gain access for more than a week due to fallen power lines, workers needed another three weeks, teaming with nearly 2,000 engineers dispatched from suppliers and OEM customers, just to clean up debris and reposition equipment.

Production trials followed and the plant resumed limited deliveries in August. From September, Renesas was able to meet pre-quake demand mostly by diverting production to other operations in Japan and overseas.

But analysts report there have been no major changes in Toyota’s supply chain a year after the twin disasters.

Most options discussed early on – such as expanding parts inventories at vehicle plants – proved neither cost-effective nor practical. As a result, Toyota’s famed just-in-time delivery system remains intact.

That said, the auto maker has assumed greater control over its supply chain and now knows who supplies what, when and where down to the third and fourth tiers. Where possible, it has taken steps to increase dual- and triple-sourcing of strategic components and materials both in and outside of Japan.

But there are limits.

A Renesas executive warns that building a buffer for future disruptions is expensive and, because microprocessor margins already are small, could cut into profits.

Grady Loy, in-house counsel for Mitsubishi Gas Chemical, whose Kashima hydrogen peroxide plant was shut down for more than a month and didn’t resume full operations until June, says it often is impractical to decentralize large chemical and petrochemical operations due to capital-investment costs.

For example, Shell Eastern Petrochemical’s 800,000-ton (720,000 t) ethylene complex in Singapore, which opened in 2010 and is roughly the same size as Mitsubishi Chemical’s Kashima operation, cost $3.6 billion to build.

“There are no magic bullets,” Loy says. “Decentralization can result in unused capacity, and investing in unused capacity adds substantially to somebody’s costs.”

Already under way is a shift of additional vehicle production outside of Japan, though this has been driven by the continued strength of the yen, not by fear of future natural disasters.

Toyota and rivals Nissan and Honda now produce most of their global vehicle platforms in other markets. Nissan shifted March/Micra output to Thailand, India and China in 2010 and last spring began building the car in Mexico. Mitsubishi launched the Mirage this spring in Thailand and will follow with production in China next year.

Analysts now are waiting to see what Toyota will do.

Atsushi Ishii, senior manager for IHS Automotive, says the auto maker is committed to keeping domestic capacity at a base of 3 million units. “But to do so, it will have to put greater emphasis on hybrids and other higher-value cars, including Lexuses,” he says.

That appears to be the direction the auto maker is moving toward with its Tohoku, or northeastern Japan, strategy.

Here in Kanegasaki, Kanto Auto Works began production of the new Aqua and Prius C hybrids in mid-December. The car, which achieves an industry-leading 50 mpg (4.7 L/100 km) city/highway, is being built at a monthly rate of 30,000 units and accounts for more than 80% of plant output.

Last July, Toyota President Akio Toyoda declared the Tohoku region, comprising six northern prefectures, including Iwate and Miyagi, would become the auto maker’s third manufacturing center in Japan, following Chubu (central Japan, including Aichi prefecture) and Kyushu (southern Japan).

“Tohoku will be responsible for developing and assembling compact cars, along with producing engines and main structural components,” he said.

To this end, Toyota merged the operations of Kanto, Central Motor and Toyota Motor Tohoku in January and officially will rename the operation Toyota Motor East Japan in July.

Toyota Motor Tohoku, which makes braking systems and torque converters north of Sendai in the city of Taiwa, will begin producing engines late this year. Planned yearly capacity is 100,000 units, all targeted for installation in hybrids.

But even before the earthquake, Toyota had a made a financial commitment to the region, initially hoping to take advantage of wage levels estimated at 20% less than what the auto maker pays elsewhere.

In 2005, Kanto invested ¥32 billion ($400 million) to construct a second line in Kanegasaki. Then in 2011, literally weeks before the March 11 earthquake, Central opened the Ohira plant.

Combined capacity of the two facilities now stands at 420,000 units, nearly 10% of Toyota’s Japan total.

While the auto maker declines to disclose its investment in Central’s Ohira plant, Japan’s Nihon Keizai Shimbun reported ¥47 billion ($573 million) prior to the global recession in late 2008 at which time the project was put on hold. The final cost is believed to be substantially less.

And Toyota not only is building cars in Tohoku, the auto maker’s hybrid-battery subsidiary, Primearth EV Energy, opened a ¥30 billion ($369 million) factory in January 2010 with capacity to produce 300,000 battery packs for hybrid cars.

In 1997, Toyota established Toyota Motor Tohoku. The auto maker began producing transmissions in Tomakomai, Hokkaido, north of Tohoku, in 1992.

Both operations, Toyota Motor Tohoku and Toyota Motor Hokkaido, supply the auto maker’s Tohoku plants. And beginning later this year, Toyota Motor Tohoku will supply engines to the world’s most fuel-efficient hybrid.