Tsunami Devastates Japanese Auto Industry -- And Car Buyers Everywhere

One auto industry observer has suggested that the March 11 earthquake and resulting tsunami that crippled Japan “may ultimately rank as the largest peacetime disruption of world auto production.” Video and photos of the devastation left by the natural disaster still haunt us daily, but one aspect of the disaster that has been largely underreported by the general media is the crippling effects the quake/tsunami has had (and will continue to have) on the global auto industry. Some of the quake/tsunami’s devastation within the car industry was felt immediately, but other effects -- including those that could influence what car you buy -- will not be understood for months or even years to come.

The disaster in Japan will have far-reaching effects because of the interlocking nature of the global auto industry. The supply chain for Japanese vehicle manufacturers has been ripped apart and -- because parts produced in Japan frequently end up in vehicles that are produced in the Americas, Europe and Asia -- the world’s automakers are also suffering from a shortage of parts and other supplies. Those shortages will have substantial effects down the road. Parts that aren’t being produced today will prevent cars that require those parts from being produced tomorrow; those cars that aren’t produced tomorrow will, of course, not be shipped the next day. So, sometime in the next several weeks, vehicles that American, European and Asian dealers were expecting to sell simply won’t arrive. Because of this, you can expect car prices over the next several months to rise.

Certainly, the sharpest increase will come in cars and trucks that are built in Japan. A quick glance at the TV news or a newspaper makes it obvious that it will be extremely difficult for the Japanese auto industry to resume its momentum. The disruptions elsewhere are far less intuitive, but equally real. Ford Motor Company recently shut down its small-car plant in Genk, Belgium, because of a parts shortage. In addition, at least two U.S.-based manufacturers are limiting the exterior colors that can be ordered because of shortages of Japanese pigments. Because of a tsunami-caused problem at a Japanese battery plant, Chevrolet Volt production was disrupted, and, for similar reasons, production of the Toyota Prius has been on-again, off-again over the past two weeks -- just as demand for that vehicle is heating to a boil in the United States. In addition to shattered and flooded plants, Japanese carmakers and parts suppliers also face a critical shortage of electricity to power their plants.

The travails of the Japanese nuclear power industry have topped the international story docket for a couple of weeks now. While potential radioactive leaks are the most frightening potential problem, an associated story is that substantial amounts of electrical generating capacity have gone offline. Since you can’t build cars without electricity, the power shortage is a potentially giant problem that Japanese automakers are struggling to deal with. Rolling blackouts are disastrously inefficient for automakers because they force shutdowns that are essentially random. That not only disrupts vehicle production, but also requires them to pay workers who are not working. The assembly line just stops. How big the problem will become remains to be seen, but there is no doubt that the supply of vehicles built in Japan will be severely curtailed in the next several weeks. Honda and Mazda recently asked their American dealers to cease ordering vehicles built in Japan until they can assess their ability to build vehicles. But the lost production in Japan is only part of the problem. The trickledown effect of a failure to build parts in Japan will result in the production of fewer vehicles in North America, South America, Europe and Asia.

The current gap in production might simply be simply a blip, a shortfall that could quickly be made up by longer hours or additional shifts once the situation normalizes, or it could have much greater implications. Some Japanese parts suppliers might be forced into bankruptcy. The slowdown in production could push vehicle manufacturers who have already been battered by the global recession to the precipice. What it means to you is this: If you’re planning on buying a car in the next six months, you should think about making that purchase in the next few weeks instead. After that time, the supply of popular models, especially from Japanese nameplate manufacturers, will likely become problematical.