Monday, March 21, 2011

Auto aftershocks?! Quake hits U.S. output; Japanese scramble to recover; prices could rise

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As Japan's escalating disaster comes ashore in North America, automakers, suppliers and dealers are preparing for shortages of parts and vehicles.

-- On Thursday, March 17, AmericanHonda Motor Co. Executive Vice President John Mendel sent a memo to U.S. Honda and Acura dealers saying the disaster in Japan will disrupt dealer orders into May.

-- General Motors' Shreveport, La., factory, which builds the Chevrolet Colorado and GMC Canyon pickups, closed because it ran out of a Japanese part that it did not identify.

-- Toyota Motor Corp. and Subaru of Indiana Automotive Inc. slowed North American production to ration their parts.

-- At Sonic Automotive Inc., the nation's third-largest dealership group, Jeff Dyke, executive vice president of retail operations, said Sonic "is prepared to supplement our new-vehicle inventory with quality nearly new used vehicles should the manufacturing disruptions interrupt new vehicle inventory supplies longer than currently anticipated."

-- Last week U.S. Customs directed all port operations to begin screening arriving Japanese sea and air cargo, including vehicles and auto parts, for radiation contamination. Customs will turn away containers or people if unacceptable levels of radiation are detected.

If factory shutdowns spread, says Jesse Toprak, vice president of industry trends at, U.S. retailers should prepare for higher transaction prices on new vehicles in the next 60 days.

"Not just Japanese-brand vehicles but all brands," Toprak says. "If there is going to be scarcity of Japanese models, then you will see their incentives fall. And if incentives fall on those brands, you can be certain they will fall everywhere."

Toprak estimates that the average transaction price of the Toyota Prius, which is built only in Japan, will go from $1,732 below sticker last week to $800 above sticker by April 30. One of three Japanese battery plants supplying the Toyota Prius was damaged by the quake.

"We have a Toyota dealership that sells 25 Prius models a month, and we have 13 in stock," said a dealership group executive who asked not to be identified. "What do you think will happen?"

Some of the transaction price increases reflect rising gasoline prices. Many of the models now threatened by production disruptions in Japan are among the automakers' most fuel-efficient, including the Honda Fit, Insight, Civic Hybrid and CR-Z. forecasts that the discount off sticker on a Honda Fit will shrink from an average of $1,188 last week to $400 by April 30, effectively a price increase of $788.

Ford Motor Co. declined to speculate what impact future parts shortages would have on its sales.

"We don't want to be drawn into what potential impact it might have because this situation is moving so quickly," says Todd Nissen, a Ford spokesman.

Ford has not experienced any parts' shortages that would force it to suspend production at any plants, Nissen says. But he warns: "It's a situation that changes constantly and we're monitoring it daily with hourly contact with our suppliers, shipping companies and all the others that are part of the logistics system."

He declined to quantify the percentage of parts used by Ford that come out of Japan.

Multiple shocks

Vehicle producers in Japan quickly inspected the damage at their plants last week after the multiple shocks of two earthquakes, a tsunami and the unfolding nuclear power-plant disaster. Assembly plant shutdowns there will mean more than 285,000 units of lost production, just through March 23, predicts global forecasting firm IHS.

But as the week ended, Japan's auto companies were still struggling to get information from their thousands of suppliers around that nation -- companies that also export materials and components to U.S., European and Asian customers. In some cases, purchasing managers in Japan couldn't even communicate with suppliers let alone assess the damage to the parts plants.

"Most of us have a pipeline for a while," said an American staffer at a Japanese automaker in North America who asked not to be identified. "But when those run out, there's going to be trouble. You have to consider that even our American suppliers get parts out of Japan."

Japan exports 2 million transmissions a year to North America and another 6.5 million to other world markets, IHS estimates. The forecasting consultant estimated last week that as many as two-thirds of Japan's 72 engine and transmission plants had stopped production.

Two of them belong to Jatco, a transmission maker owned by Nissan Motor Co. and Mitsubishi Motors Corp. Jatco's two plants south of Tokyo escaped unscathed from the first 9.0-magnitude earthquake on March 11, the ensuing tsunami and the succession of earthquake aftershocks that continued last week. Then they were damaged by the second, 6.2-magnitude earthquake in the middle of last week.

Jatco produces some transmissions in Japan for Nissan's U.S.- and Mexico-made vehicles, but a spokesman for Nissan North America was not able to say what production might be affected because of the problem.

Aisin Seiki Co. supplies transmissions to the Shreveport pickup plant GM shut down because of a parts shortage. Chuck Sanders, assistant vice president of Aisin's U.S. unit, said Aisin's transmissions were not part of the shortages.

Delphi delays

Delphi Automotive has identified 20 of its 200 Japanese suppliers as being within 100 miles of the epicenter of the initial earthquake.

"With the continued shortage of power and water in the area, we anticipate delays and/or that potential disruptions may occur and could impact much of the automotive supply chain," spokesman Lindsey Williams wrote in an e-mail to Crain's Detroit Business, a sister publication to Automotive News.

In addition to still uncounted damage to buildings, machinery, bridges, roads and utilities, companies in Japan face rolling electrical blackouts. Toyota, Nissan, Honda Motor Co. and others halted production at some undamaged plants last week because of utility interruptions.

That problem was caused by the shutdown of damaged nuclear reactors in Fukushima, Japan. And that crisis, in turn, caused an entirely separate problem as corporations, residents and international governments began to fear radiation contamination.

As of late last week, Japanese nuclear power authorities had not publicly addressed the issue of how bad the radiation leakage is or could be. Nissan said it has begun monitoring all vehicles and parts for traces of radiation. Germany's BMW AG and Volkswagen Group recalled all German personnel from Japan.

Toyota, Honda, Mazda Motor Corp. and Suzuki Motor Co. say most or all of their Japanese plants will remain down until the middle of this week.

But uncertainty overshadows the discussion for many. Steve Curtis, a spokesman for Toyota Motor Sales U.S.A. Inc., said the automaker will "re-evaluate" on Tuesday, March 22, whether to restart production in Japan.

The dicey future in Japan is illustrated by the case of the Japanese assembly plant the farthest from the earthquake's epicenter.

On Friday, Nissan reopened its Kyushu plant, which builds the Rogue and Murano crossovers, the new Quest minivan and other models. But Nissan plans to run the plant only until available parts are depleted.

It also said its North American plants will run normal schedules this week. But after that, production plans are uncertain.

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