In a memo that surprises no-one that has followed TTAC’s extended coverage of the March 11 earthquake and tsunami, Toyota’s U.S. chief Bob Carter warns dealers that deliveries of parts and cars could be severely restricted for months to come. “What we don’t know are vehicle production levels for May through July,” Bob Carter wrote in a memo. “The potential exists that supply of new vehicles could be significantly impacted this summer.” You have seen this coming.
Most of Toyota’s Japanese production has been down for a month now. As of last week, Toyota – and for that matter the Japanese industry – had no clear picture of the status of many suppliers and their parts. With near daily regularity, Japan is being rocked by huge 6 to 7 magnitude earthquakes that became “normal” only in comparison to the March 11 monster. Japan runs out of everything from bottle caps to cigarette filters, and especially out of electrical power. Renesas, a company that controls about 41 percent of the global market for automotive microcontrollers, is battling outages that will affect strategic supplies for many months. In a land that can only guess how many of its own have died (currently, the confirmed number stands at 13,013, while 14,608 are listed as missing), the only thing that is clear is uncertainty.
Currently, the only car production Toyota has running in Japan is that for the Prius, the Lexus HS 250h and CT 200h, and a just re-opened tired plant in Sagamihara that had been scheduled for decommissioning. In addition, Toyota has been making some parts. Toyota will restart vehicle production at all its Japanese facilities from April 18 to 27 – very carefully. Then, production will be shut down for a holiday week, while parts levels are being assessed.
Add to this a month-long supply line to the Americas and Europe, and you have problems well into June and beyond – from the currently known outages alone. “The memo is Toyota’s clearest statement that the shortage caused by the March 11 earthquake and tsunami in Japan will last into the third quarter,” writes an astonished Wall Street Journal. Only amateurs will be surprised. In the morning after the tsunami we had warned that it will severely disrupt the auto industry around the world.
Last week, we said that it is it is conceivable that the industry in total will have lost a million cars by the end of April – in Japan alone. IHS Automotive ups the ante and says that five million fewer vehicles could be produced globally this year. Michael Robinet, a senior analyst with IHS Automotive said “it would be miraculous if Nissan and Honda were able to circumvent the same pressure that Toyota is feeling,”
Today, The Nikkei [sub] writes that Japan’s major automakers barely begin “restarting production at domestic plants suspended by last month’s earthquake.” Nissan will bring a small-car factory in Yokosuka, Kanagawa Prefecture, back online Monday. Honda has resumed operations at assembly plants in Sayama, Saitama Prefecture, and Suzuka, Mie Prefecture. “Even though their production will remain at about half normal levels for a while,” writes The Nikkei, “the three manufacturers intend to gradually lift facility utilization as they restore supplies of components that have been disrupted since the March 11 disaster.”
Japan has lost a month of production. Production is on half rations until further notice.
Only amateurs will assume that the problems will be limited to Japanese manufacturers. Ford warns in an SEC filing made yesterday that “we now expect that beginning in the last week of April and continuing into May, certain of our operations in the Asia-Pacific region (including certain of our joint venture operations) will be affected by shortages of components and vehicle kits as a result of the events in Japan.” The company does not expect “a material impact on” its overall results from this.
However, the filing continues, “because the situation in Japan continues to develop, supply interruptions related to other materials and components from Japan could manifest themselves in the weeks ahead. Should the supply of a key material or component from Japan be disrupted and an alternate supply not be available, we could have to reduce or temporarily cease production of vehicles, which could adversely affect our and Ford Motor Credit Company’s financial condition and results of operations.” As a precautionary measure, this is a filing any U.S. listed car company should make.
Lastly, as we have been warning from a few days after the tsunami until yesterday, the limited supply of cars will have a material impact on car prices and car sales. April transaction prices are expected to be the highest in 15 years, when measured as a percentage of MSRP. And as you can see from above, this is also just the beginning.