Earthquake will affect auto industry worldwide

(March 14, 2011) The massive earthquake and tsunami that slammed Japan last week may have a devastating and lasting affect on the entire Japanese auto industry including production and sale of U.S. vehicles even though the Japanese big three — Toyota, Honda and Nissan — assemble a large portion of their vehicles in North America.

The problem that will soon face American assembly plants will be a supply chain disruption. If just a handful of parts sourced in Japan become unavailable, the shortage will effectively shut down assembly lines around the world.

"Overseas production could be affected if shutdowns become prolonged, as core components such as engines and transmissions are supplied to overseas vehicle factories from Japan," predicted Kohei Takahashi, an auto analyst with J.P. Morgan Securities in Tokyo.

Because all Japanese assembly plants now work with a "just in time" manufacturing system, parts are no longer warehoused, but arrive from the supplier on a daily basis as needed.

In addition to physical damage, many plants are facing the loss of electricity due to the destruction of several nuclear plants that may have to be permanently abandoned.
It seems Toyota may be the hardest hit with many of its assembly and parts plants in the disaster zone. For instance, the plant that builds the subcompact Toyota Yaris in located in the center of the disaster area and may require weeks or even months to get back on line.

Also there is concern at the Kanto Auto Works Iwate Plant where employees have been evacuated to safe areas. That plant builds the Scion xB and Scion xD.

Honda has 113 suppliers in the quake zone and still can't get in touch with 44 of them, it has been reported.

"We cannot complete a car, even if one or two parts are missing," Honda spokesman Keitaro Yamamoto said. "So it's better that we stop production altogether."

Perhaps the outlooks is not as bleak as it appears today. But any disruption will affect the production of vehicles in the U.S. and will severely crimp  the supply of vehicles to thousands of U.S. dealers.

— Jim Meachen

Sources: Japanese auto companies, media reports