Japan disaster sends an auto shock wave

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The economic reverberations of Japan's devastating earthquake and tsunami are creating fissures in the global auto industry, shuttering Japanese factories and raising worries about production shutdowns in North America.

Auto makers are scrambling to assess the full impact of the twin natural disasters and Japan's ongoing nuclear crisis. But there are already signs that Japanese plant shutdowns will interrupt supply chains beyond the country's borders.

Japanese auto makers' manufacturing facilities in Canada and the U.S. will likely get hit by short-term shutdowns by the end of this week, predicted Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc.

"It has got to happen. The supply chain is just so short and so lean," Mr. DesRosiers said.

Even though only 7 to 8 per cent of a North-American built car comes from Japan, "all it takes is one critical supplier to be out of business and you can't make vehicles," Mr. DesRosiers said.

Because the industry's global supply chain is so integrated, analysts predict that short-term disruptions of both vehicle parts and some popular models are imminent.

Not only is Japan's ravaged northeastern region a major hub for auto parts suppliers and critical infrastructure that traditionally ensured the flow of goods to overseas markets, but persistent power outages have not let up.

For those reasons, Nissan Inc. said some Infiniti models, as well as the GTR and 370Z, could face delayed shipment to Canada and the United States. The North American supply of fuel-efficient cars such as the Toyota Yaris, Toyota Prius hybrid and Honda Fit is at risk because those cars are only made in Japan.

Shutdowns could affect Toyota Canada Inc. and Honda Canada Inc., which each have two assembly plants in Canada. Toyota employs about 6,200 workers and Honda employs around 4,600.

The profit impact of stopping car production in Japan for one day would be about six billion yen ($73.3-million) for Toyota and two billion yen for Honda and Nissan, according to Goldman Sachs.

Japan made nearly 7.9 million vehicles in 2009, or about 13 per cent of the 61.7 million vehicles produced worldwide that year, according to the International Organization of Motor Vehicle Manufacturers. The U.S. is its largest market, taking in 1.2 million Japanese vehicle imports, according to the Japan Automobile Manufacturers Association.

The potential shortage of "high-value" Japanese-made components, such as engines, transmissions and electronics that are used in North American-made cars, is the biggest concern.

While only 7 to 8 per cent of the content of a North American-built car comes from Japan, those components tend to be quite "critical" and it remains unclear if those parts plants are among those affected, Mr. DesRosiers said.

A potential halt in North American production will likely last two to fours weeks initially but could persist as long as six weeks, he predicted.

For the moment, Toyota Canada said the company's two Canadian manufacturing facilities, which build the Corolla, Matrix and RAV4, will continue to operate under normal business conditions, but the company confirmed that overtime has been cancelled for this week. Toyota did not immediately comment on an Associated Press report that the company is also suspending production on Saturdays at all of its North American plants to assess the availability of car parts.

As for Toyota's Japanese production, two plants originally shut after the earthquake first hit are expected to restart later this week. These produce the Yaris model and both the Scion xB and xD.

Honda, which also manufactures in Canada, said it does not foresee any shortages of the Japanese-made Honda Fit here. "There's still a number of cars in the system," a spokesperson said, alluding to available inventory. Plus, the Fit isn't a worry for Honda because 92 per cent of its Canadian sales last year came from domestically-manufactured cars like the Civic.

Nissan Canada and Mazda both do not produce in Canada but the fallout from their Japanese shutdowns are still unknown. Mazda's two best-selling models in Canada, the Mazda 3 and the Mazda 5, are both manufactured in Japan. However, the its plants are located in Hiroshima, far away from the quake's epicentre and there has been no structural damage.

Auto makers typically keep a 90-day inventory on hand, providing a buffer when production is interrupted. But foreign makers have historically kept less extra supply on hand, noted Joe Phillippi, president of AutoTrends Consulting in Short Hills, N.J.

Though auto makers are optimistic about resuming plant operations, shutdowns could reoccur.

"We just don't know what's going to happen with respect to these [rolling]power outages," said Mr. Phillippi, adding that it remains unclear whether power supplies will be sufficient to restart entire complexes or just office equipment, like computers.

With files from wire services