The disaster in Japan has revealed how much auto makers depend on suppliers. Many decades ago, a manufacturer used to build all or most of the vehicle. But the competitive nature of the industry and increased complexity has led to the point where auto plants are the point at which a number of major components - sourced elsewhere - are added to the assembly process.
On average, more than 3,000 individual parts are used in the construction of a new passenger vehicle. Outside companies design, develop, produce and deliver a vast array of items from seats and instrument panel assemblies to complete electronic components or the tiniest computer chip. It is arguably the world's most complex supply chain.
The earthquake and tsunami in Japan have impacted the global supply chain for a number of industries and products, but probably none more than the auto industry. The vast majority of the plants producing vehicles in Japan are located at the opposite end of the country, south of Tokyo. The disaster struck several hundred kilometres to the north and no production facilities were affected directly. But shortages of water, fuel and electricity will cause many plants to remain shuttered for months.
Not only car plants, but supplier operations are affected in this way. Hitachi, which manufacturers a vast array of electronic components such as airflow sensors and control systems used by Japanese, South Korean, European and American plants, is all but shut down. Its own suppliers, scattered across the country, are down due to lack of water, gas and rolling electrical blackouts. In many cases, workers at these smaller operations are hard at work repairing the very buildings where they work.
Thousands of Canadians will be affected from dealers and sales people to workers at the numerous plants in this country where cars are built and even other suppliers. If company A can't continue to build a certain product due to a shortage of parts, it has to shut down the line and halt the continual (daily) supply chain of parts and pieces. For example, a plant where cars are built gets it engines from another plant. If any single component of that engine, like a computer chip or sensor can't be sourced, it shuts down and the car plant has to shut down in turn.
It comes as no surprise that Japanese manufacturers selling vehicles here are impacted. Honda and Toyota build most of the vehicles they sell in North America here. Both have large plants in Canada. But a number of their models are built in Japan, and shipments of these models will stop for weeks or, in some cases, months. Similarly, shipments of parts and components used in North American plants will also soon be disrupted.
But it is not only the Japanese manufacturers who are being affected. Ford has altered production of the best-selling vehicle in North America, the built only-in-America F-150 pickup because the pigment used to create a few of the colours offered on the truck is produced in a small plant in northern Japan, within 50 kilometres of the damaged nuclear plant. Chrysler also has curtailed production at some North American plants. Swedish companies have said they will be closed for weeks, if not months, due to parts shortages.
Many experts think this parts shortage may prove to have the biggest impact in the history of the industry. Disruptions in the global supply chain will be felt for months and we can expect prices to reflect availability. In other words, if you are shopping for a new vehicle that is in short supply because it is produced in Japan, or because of the supplier issue, expect to pay a premium.