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More on Japan disaster and cars

By Claes Bell · Bankrate.com
Wednesday, March 16, 2011
Posted: 11 am ET

Add significant and potentially lasting damage to the Japanese auto industry to the list of tragic consequences from Friday's massive earthquake in Japan.

The Japanese auto industry is a linchpin of the global auto market, and disruptions to it affect consumers worldwide. In 2010 alone, the country produced nearly 9.6 million passenger vehicles. For some perspective on that number, the entire U.S. auto market, the second biggest in the world, amounted to 11.5 million vehicles last year.

Make sure your donations to help victims of the Japanese disaster are well spent (map by W.Rebel)

The disaster in Japan could have lasting consequences for the auto industry (map by W.Rebel)

In addition to the country's domestic auto production, millions more cars are assembled by Japanese automakers in factories all over the world, including within the U.S. Those factories may have been far-removed physically from the devastation of the Japanese earthquake, but there will be an immediate impact on their ability to operate, because many of the parts that go into the cars they assemble are still manufactured in Japan.

From Hans Greimel at The Automotive News:

Even U.S. output at Japanese-brand plants may be hurt if parts exports are pinched.

"Overseas production could be affected as well 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.

"Given the 20,000 to 30,000 parts that go into making an automobile, and the difficulty of procuring even basic materials, we do not foresee a return to normal production schedules anytime soon," he wrote in a report, adding he saw little lingering long-term industry damage.

It's important to remember that cars are really, really complicated to build. The lack of even one seemingly minor part makes it impossible to finish a car. After all, no one wants to buy a new car missing, say, a right-rear quarter panel or the volume knob on the car's radio. If the lack of even one tiny part can disrupt the production of a whole car, imagine how disruptive losing multiple auto parts factories would be to the industry as a whole.

Making matters worse, Japanese automakers are pioneers of "just-in-time" production, where parts are manufactured and delivered to factories sometimes just hours before they're needed to assemble a full car. During normal times, such a system minimizes waste by eliminating the need for giant parts warehouses and ensuring parts suppliers only produce the exact amount of parts needed for the amount of final product that's called for.

But if there's any shortage of parts, the system can quickly break down, halting production on finished products. And it seems unavoidable that production at Japanese auto suppliers will be disrupted by some or all of the following factors:

  • Damaged facilities. It's unclear at this time exactly how many factories are damaged to the point they won't be ready to reopen for a significant period of time. Honda alone has 44 suppliers in the supply zone it can't even get in touch with, writes Greimel.
  • Workers recovering from the disaster. Considering the horrific number of casualties in the country, it's likely some auto workers were killed or injured in the tragedy, and even workers that escaped physically unscathed are going to need time to search for loved ones, find new housing and otherwise put their lives back together.
  • Diminished power capacity. Auto manufacturing is an incredibly power-intensive endeavor, and I've been seeing the power capacity lost in the earthquake pegged at around 9 percent. There are currently rolling blackouts still taking place in the country to try and ration power, and that doesn't bode well for any kind of manufacturing.
  • Unknown unknowns. To borrow a phrase from former Defense Secretary Donald Rumsfeld, in a disaster of this size, there are always "unknown unknowns," unanticipated complications resulting from the massive disruptions to a country's infrastructure and population.

Put all this stuff together and you can pretty much count on significant delays and shortages of Japanese cars worldwide that may linger for an indeterminate amount of time. And the cars they are able to produce could be dogged by quality issues stemming from shifting production quickly to foreign parts distributors.

While a damaged auto industry is only one consequence of this terrible disaster, it could have a significant effect on the millions of American consumers who've come to depend on the excellence and enduring quality of Japanese autos.

Here's hoping the country and its auto industry experience a rapid recovery.

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