Japan Quake may Impact Automakers Beyond Japan

The economic repercussions of Japan’s devastating earthquake and tsunami are creating shock waves in the global auto industry. The dual disaster have shuttered many Japanese factories alright, they are also causing worries about the impact on the production shutdowns in North America. While Japan is grappling with the situation created as the after math of the earthquake, auto makers are scrambling to assess the full impact of the twin natural disasters and Japan’s ongoing nuclear crisis.

There are already signs that Japanese auto plant shuttering will interrupt supply chains beyond its borders. It is affecting the auto industry’s global supply chain. The auto companies outside Japan keep their fingers crossed and hope that the disruption does not stay long enough to affect the deliveries of the car parts or shipments. Japan’s ravaged northeastern region is a major hub for auto parts suppliers and critical infrastructure. The auto parts suppliers have traditionally ensured the flow of goods to overseas markets earlier before persistent power outages came in. Even though only 7 to 8 per cent of a North-American built car comes from Japan, all it takes is one critical supplier to be out of business and you can’t make vehicles.

Because the industry’s global supply chain is so integrated, it is predicted that short-term disruptions of both vehicle parts and some popular models are imminent:

  • Nissan Inc. said some Infiniti models, as well as the GTR and 370Z, could face delayed shipment to Canada and the United States
  • The North American supply of fuel-efficient cars such as the Toyota Yaris, xB and xD models of the Scion, Toyota Prius hybrid and Honda Fit are at risk because those cars are only made in Japan

While Japanese auto makers are grappling with the situation to restart production, the automakers around the world can feel the ripples caused by the twin natural disasters and Japan’s ongoing nuclear crisis, as the following:

  • British parts maker GKN Plc (GKN.L) says that it may have to cut the number of components it makes because some of its Japanese customers, which include Mitsubishi (7211.T) and Nissan (7201.T) may be unable to take deliveries
  • Shutdowns could affect Toyota Canada Inc. and Honda Canada Inc., who have two assembly plants each in Canada
  • French car parts maker Valeo’s (VLOF.PA) five factories in Japan, which supply local car makers, are operating but it is too soon to say if they would have to lower the rate of production
  • The potential shortage of ‘high-value’ Japanese-made components, such as engines, transmissions and electronics that are used in North American-made cars, is the biggest concern
  • Both Nissan Canada and Mazda do not produce in Canada but the fallout from their Japanese shutdowns are still unknown
  • Nissan, Honda (7267.T) and Toyota (7203.T) export their luxury cars to China instead of producing locally. Exports to China will suffer now, as the big three have shut their Japan plants
  • Nissan who has an engine factory in the region supplying around 12 percent of its global need for engines, might be hardest hit
  • European car makers, Renault would be affected, because of its cross-shareholding with Nissan
  • Truck makers Daimler and Volvo (VOLVb.ST) with significant production in Japan are also exposed
  • Volvo said it had halted production at its Japanese unit UD trucks’ four plants until March 21
  • Japanese auto makers’ manufacturing facilities in Canada and the US will likely get hit by short-term shutdowns by the end of this week

Auto makers typically keep a 90-day inventory on hand, providing a buffer when production is interrupted. But foreign makers have typically kept less extra supply on hand. Though auto makers are optimistic of resuming production, shutdowns could reoccur. It is still not clear if power supplies will be sufficient to restart entire operations or just the offices.

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