World Auto Supply Reeling From Japan Disaster

Toyota’s Gas-Electric Hybrid Prius v:
NOT Coming To A US Showroom Any Time Soon
Credit: Toyota UK

22 March 2011.

Toyota’s Gas-Electric Hybrid Prius v:
NOT Coming To A US Showroom Any Time Soon
Credit: Toyota UK

22 March 2011.

Since catastrophe struck Japan in the form of an earthquake, a tsunami and a nuclear crisis,

manufacturers that rely on Japanese factories are concluding that their operations will be affected more severely — and for a longer time — than they had initially hoped.

Nissan, for example, has at least nine Japanese vehicle and parts factories and 35 suppliers that have been disrupted by the disaster.

The company’s engine plant in Iwaki, damaged by the quake, could take so long to get back to normal production that

Nissan is considering the extreme step of shipping engines made at its Tennessee plant to Japan to go in cars there,

the chairman of Nissan Americas said in an interview last week.

“This is a serious situation, and it has the potential to affect many markets, including the Americas,” the executive, Carlos Tavares, said.

“We are going to make sure we address the issues as fast as we can.

We have a buffer, a cushion, that’s going to give us a little bit of time to bring things back on track.”

But Tavares said it could be weeks or months until the supply chain is back to normal.

He just doesn’t know.

Many other companies are also uncertain about when or how they can return to full production.

Honda, which had earlier hoped to restart its shuttered Japanese plants on Monday, announced it was extending the shutdown by at least three days,

reassessing the situation after that “based on the status of the recovery of parts supply as well as Japanese society as a whole.”

The company has also told dealers in the United States that it will delay taking orders for Japanese-made cars and trucks
that they would normally receive in May until it has a better idea of its ability to ship them.

Tony Iskandar, the owner of Goudy Honda in Alhambra, Calif., one of Honda’s largest dealerships, said

even before the disaster he expected to run low this summer on his more fuel-efficient models,

like the Fit subcompact, which comes from Japan, because of rising gasoline prices.

“In the short term we’ll have enough cars, but in a few months it’s going to be crazy,” Iskandar said.
“We’re trying to buy as many used cars as we can.

At least that’s an option if a customer wants a Honda.

We could give them a year-old or two-year-old certified car.”

Nissan restarted two of its Japanese plants last week but warned it might need to shut them again any day as available parts are depleted.

The rest are staying down until at least later this week.

Tavares said 35 Nissan suppliers in Japan were “addressing issues in their plants,”

and some lower-tier suppliers undoubtedly have to repair their buildings or equipment as well.

Toyota’s plants in Japan, which build nearly half the vehicles the company sells worldwide, also remain closed.

Of particular concern to many dealers is the Prius, a gas-electric hybrid car,

which is assembled only in Japan and has been experiencing a surge in demand.

TrueCar.com, which tracks vehicle pricing and sales, said the uncertainty about Prius availability

had already caused the average price customers are paying for the car to soar by about $1,800 since the earthquake.
Jesse Toprak, TrueCar’s vice president for industry trends and insight, predicted that

dealers will soon be charging sticker price — or even hundreds or thousands of dollars higher, a practice automakers discourage but cannot prohibit.

“The problem is that there’s so much uncertainty,” Toprak said.

“The supply-chain problem is a much more dramatic one than what the automakers are portraying.

Even if they were able to come online in two weeks, which I think is wishful thinking,

there’s a couple hundred thousand units to make up already,

and nobody exactly knows how long this is going to last.”

General Motors is halting output at a pickup-truck plant in Louisiana this week

because it is running low on an unspecified part from Japan, with ripple effects on other G.M. operations.

In North America, Nissan said its plants would follow normal schedules for at least the next seven days —

because that is only as long as officials can be certain they will have enough parts.

If Nissan has difficulty obtaining some parts, Tavares said, it could keep American plants running

by building more of a particular model and fewer of another

or temporarily stopping the assembly of certain trim levels.

He also said there would “certainly” be situations in which parts that normally travel across the Pacific Ocean by boat
would be flown instead, at increased cost, to speed deliveries.

If American plants scale back production because of a scarcity of parts from Japan,

it could affect other parts makers based in the United States.

Johnson Controls, whose plant in Murfreesboro, Tenn., makes seats for the Nissan factory in nearby Smyrna,

could lose some business if Nissan has to slow production.

“I am worried because I might not have a job for a couple of weeks,”

said Catreena Lynch, 19, who works on the inspection line at the Johnson Controls plant.

Jimmy Allen, owner and founder of Venture Express, a trucking and logistics company in La Vergne, Tenn., said

officials at Nissan had reassured him during a conference call last week there would be no problems.

“Nissan is very well managed in their supply chain, so I don’t anticipate a slowdown in production,” said Mr. Allen,

whose company delivers supplies from Kentucky, Michigan and Ohio to Nissan and Johnson Controls.

“But if the parts do become a problem in 60 days, it might affect a slowdown.”

Tavares said Nissan officials had been working continually since the earthquake to gather information,

but that many details remained elusive.

Ensuring the safety of Nissan’s workers was the top priority, Tavares said.

In addition to the thousands of workers based in Japan, 61 people from Nissan Americas were in Japan at the time. None were injured.

Executives also approved a $3.75 million donation toward relief efforts

before shifting their focus to conducting a detailed assessment of the company’s operations and its extensive supply chain,

which provides thousands of parts for 60 models.

Tavares said Nissan was offering assistance to its affected suppliers to help them restart more quickly.

But he could offer no guess on the financial toll or when the company would return to normal, according to the New York Times.

David Caploe PhD

EconomyWatch.com