More Quake Consequences: Car Production Could Drop 40 Percent

March 28th, 2011

Japanese auto workers

In a nasty little nutshell, here are a few major effects from the disaster in Japan: shortages in electricity; parts scarcities and increasing supply chain disruptions; higher car prices; and a possible 40-percent drop in global auto production.

That last one is the big bomb to fall. As you surely know by now, the auto industry has been internationalized for years, and so most all the bigger carmakers will be affected. A good summary of the situation is here.

Japan is home to the world’s second-largest car industry, and many important second- and third-tier suppliers are located there. Quite a few of these are still down and may not come back until summer.

Spare auto partsWe’re talking about things like airflow sensors and chips, paints, copper foil for batteries, rubber and plastic parts. A lot depends on how long present inventories can last. As we reported last week, prices are going up and will continue to climb for Japanese cars.

But there’s humor in every tragedy:

“It’s hard enough to sell a $60,000 Navigator in this economy,” says Fortunes O’Neal, general manager at Park Cities Ford in Dallas. “We don’t want to have to tell customers, ‘You’ve got to pick another color.'”

Or pick another dealer. Fortunes would probably be happier if he could dump the whole Lincoln franchise and sell only Priuses. Their transaction prices have zoomed over 10 percent in the last two weeks.

Customers are going to lose out, too, as global vehicle production may drop as much as 5 million vehicles in 2011. Goldman Sachs estimates that Japanese carmakers are losing $200 million every day their plants are idle—or about $1.4 billion a week.

At that rate, Toyota’s annual profit for 2010 would disappear in 11.5 days. That indeed would be a case of unintended deceleration.

Have you noticed higher prices on Japanese cars since the earthquake?

—jgoods

Find Used Cars in Your Area at CarGurus

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  1. panayoti
    March 28th, 2011 at 14:27 | #1

    Can’t take issue with your research, but after having made up my mind on the purchase of the new Passat replacement, I’m finding difficult to wait until winter to buy one so I went to look at an Accord. I happened to mention the troubles with Japan to the salesman and he claimed that they weren’t having any issues so far. Now down the road is another question.

    The Japanese are a very resourceful people and usually are able to cut through bureaucratic hurdles much better than most others. I was stunned to hear that the Accord I was looking at (LX-P SE) could be had with at least $2K less than sticker. I have never heard anyone that could secure a deal like that since Honda usually doesn’t offer discounts of that magnitude. Perhaps some of your readers will correct me, but my experience has been that Honda is very difficult to deal with on price.
    So at least here locally the price issue really isn’t, at least now. Now maybe on the Pilot or Odyssey the price discount could approach that but for a next to the bottom of their product line, I am truly taken aback.

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