Japan crisis could squeeze world auto production

Thousands of cars washed away; fears raised about supply chain

Paul A. Eisenstein; Source: msnbc.com

Share

While the immediate focus of Japan is on rescuing the wounded, recovering the dead and caring for survivors, the island nation is slowly coming to grips with the impact of last week’s natural disaster on its largest industry: automotive manufacturing.

The massive earthquake and the devastating tsunami that followed appear to have wrecked or washed out to sea thousands of new cars. The force of the natural disaster also crushed plants and left manufacturers large and small struggling to take stock of the damage.

Auto production is on hold at least temporarily, and it remains to be seen how long it will take to get production up and running again. The impact of the stoppage could be felt for months in Asia and around the world — by automakers, workers, investors and motorists, who could find some of their favorite vehicles in short supply.

Thousands of vehicles have been lost or damaged, including 1,300 Infiniti luxury cars swamped by the tsunami at a storage depot by the port of Hitachi. Nissan said at least another 1,000 vehicles were damaged at the port of Miyagi — one of the cities most badly damaged by the disaster.

Just days before the 8.9-magnitude quake, a plan to boost worldwide sales to 10 million and drive profits up sharply was announced. In the long run, industry analysts suggest the current setback may have little impact on the “Global Vision” announced by President Akio Toyoda, but that could depend on the depth of the damage to Toyota’s facilities and that of its suppliers.

Part of the problem is that each auto plant depends on a network of hundreds of parts manufacturers, and it is unclear how badly those subcontractors have been impacted by the disaster, said Jim Hall of automotive analysis company 2953 Analytics. But “some assembly plants could feel it pretty soon,” Hall said, and the impact will be felt beyond Japan.

About half of all the Japanese-branded vehicles sold in North America are built in North America. But many of those factories still rely on Japanese parts makers for everything from engines and transmissions to the smallest “widgets,” notes analyst Peterson. If there is no additional source available for such components, U.S. car plants like the Nissan facility in Canton, Miss., or the Honda factory in East Liberty, Ohio, could be in trouble, he said.

Japanese factories traditionally rely on a “just-in-time” manufacturing system — where inventory is delivered to the factory by suppliers only when needed for assembly — but there’s a relatively long supply chain from Japan, so Peterson said the impact on those “transplant” assembly plants might not be felt until early April.

The impact of the crisis will likely vary from model to model, analysts say. Early signs suggest Honda could be hit particularly hard. Its Sayama plant, located in one of the regions of Japan hit hardest by the disaster, is a key assembly center, producing models like the Honda CR-V, Accord and Fit, some of them for export to the United States, as well as Acura’s RL and the TSX model. In addition, Honda said the Ogawa Plant, in quake-damaged Saitama, produces automobile engines.

For U.S. consumers, the situation might, at least briefly, repeat some of the product shortages experienced two decades ago when Japanese automakers agreed to so-called “voluntary” restraints on exports to the United States. That led to a sharp run-up in the price of Japanese automobiles.

- Edited by Amanda McLeman, Plant Engineering, www.plantengineering.com