Japan Earthquake Causes Loss of 320,000 Vehicles. More Plant Shutdowns on Way and the Worst is yet to Come

Statements from automakers about the negative effects of Japan’s triple disasters of earthquake, tsunami, and nuclear powerplant failures have been guardedly optimistic since they are partly designed to prevent potential buyers from defecting. Independent assessments now emerging about the Japan earthquake are more sobering.

“The Japan disaster has had a profound effect on the automotive industry,” said IHS Automotive Director Michael Robinet, noting that 13% of the global automotive industry is shut down and companies have lost 320,000 units of production since the earthquake, tsunami and power disruptions.

“And the worst is yet to come because it will begin hitting outside Japan, and the ability to resource components is limited,” he said.

Many automakers use Japanese companies for crucial electronic parts- sensors, circuits, semiconductors, solenoids, as well as LCD screens. There are also more traditional components from Japanese suppliers such as engines, transmissions and gears. It only takes a shortage of one critical part among the 15,000 or more that comprise an automobile to shut a plant down. With parts in transit globally, and Japanese companies racing to restore production, shortages won’t be immediately evident, not will they be easily predicted.

Robinet said the nuclear radiation perimeter and rolling blackouts will retard output for several months, with the most significant non-Japan impact expected at the six-to-eight week stage – the end of April and June. IHS Automotive has now reduced its Japan light vehicle sales forecast for 2011 by 9.2% and revised global sales downward from 72 million by 0.5%. He estimates that 5 million vehicles ultimately will not be built.

Automakers with limited overseas production and sourcing appear particularly vulnerable, including second tier companies such as Mazda, Suzuki, and Subaru.

Vivek Vaidya, Vice President Automotive & Transportation, Frost & Sullivan Asia Pacific, essentially agrees.

“The Great Tohoku Earthquake has a profound impact on the global automotive industry. It is a triple disaster of unprecedented levels, and despite good news  from the nuclear power plant Fukushima, the problem is far from over,” Vaidya said.

For Japan short term effects are the ongoing production shutdown and a shortage of parts. For the global auto industry there are or will be production halts in the U.S. and Europe. Depending on how consumers react there’s the possibility that U.S., European and Korean brands will benefit from the tragedy, according to Vaidya.

Since the Japanese financial year ends on 31 March 2011, fourth quarter performance is likely to be negatively affected since plant shutdowns directly equate to revenue loss, and it now appears unlikely that shortfalls will not be made up during this fiscal year.

Vaidja says while the impact on the supply chain of Toyota is on a medium level with a production loss of 40,000 to 50,000 units during this period, for Honda it is very high with a production loss of 30,000 to 35,000 units, and for Nissan, with a production loss of about 25,000 units, at the lower end. It is however, possible for each of the Japanese Big Three to cover this shortfall in 2011, if the underlying demand remains strong.

About Ken Zino

Ken Zino is an auto industry veteran with global experience in print, broadcast and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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