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Aftershocks spread in auto sector

March 17, 2011

Aftershocks spread in auto sector

U.S. automakers expect disruptions as quake forces more delays in Japan

The Detroit News

The effects of Japan’s multiple calamities are likely to reverberate through the U.S. auto industry within weeks, company executives and analysts say.

The magnitude of the disruption to Japan’s auto sector became evident Wednesday, as the country’s biggest automakers extended the production stoppages at their domestic plants to assess the condition of their suppliers, rail links and ports after last week’s quake.

While parts shortages would eventually disrupt the Japanese plants in the United States, the effects would spread beyond them, to U.S. automakers.

“The impact of this has yet to unfold,” said Mark Reuss, president of General Motors Co.’s North American operations.

The damage to Japan’s supplier network could have an effect “bigger than anyone knows today,” he said Wednesday. He said GM had contingency plans, but did not elaborate.

Production experts say the global auto industry is vulnerable to disruptions, such as the quake and tsunami that struck northeastern Japan on Friday, because carmakers rely on a few mega-suppliers for thousands of different vehicle parts.

“All it takes is one or two key components that are missing and you can’t build the car,” said Ron Harbour, a Troy-based partner at consulting firm Oliver Wyman, in charge of the North American automotive practice.

While all automakers may be vulnerable because the industry is so inter-connected, the transplants are more exposed, with between 15 percent and 35 percent of their parts coming from Japan.

Toyota Motor Corp. said it will not resume vehicle production in Japan before Wednesday, but will start building components Monday to supply its overseas plants amid growing concerns about parts shortages.

Automakers have stockpiles of components, but may face shortages soon. “The speed at which this will occur will surprise a lot of people,” said Michael Robinet, a Northville-based analyst with forecasting firm IHS Automotive. “We’re already seeing an impact in terms of reduced overtime.”

Toyota has canceled overtime at its U.S. plants this week, but they’re all running two shifts, a company spokesman said.

“There’s a pipeline of parts between Japan and the United States, and we’re trying not to burn through that too quickly,” said spokesman Mike Goss.

If some parts run low, automakers may have a few options, Robinet said. They can reduce the number of shifts at assembly plants or switch to making less-contented models, normally smaller and cheaper cars with fewer parts. Depending on the inventory, such changes could take place in a week or so at some plants, he said.

Analysts have expressed concerns about possible shortages of semiconductors and other components used in vehicle electronics that were in short supply even before last week.

But Harbour said U.S. and Japanese plants here might have sufficient supplies for the next two to six weeks because of all the shipments and parts in transit. “It’s a long pipeline,” he said.

Chrysler Group LLC, which gets between 2 percent and 5 percent of its components from Japan, said its operations were not affected at this stage.

“We have nothing on our radar screen right now that indicates we will be significantly impacted,” said Dan Knott, Chrysler’s senior vice president for purchasing.

But he said a full assessment of all its suppliers, from the big Tier Ones to the lowest-tier manufacturers, would take four to six weeks, according to spokeswoman Katie Hepler.

Concerns are running high because of the terrible news steadily flowing out of Japan.

“Right now, the biggest concern that’s emerging is the sheer number of unknowns,” said Jeremy Anwyl, chief executive of auto research firm “The situation certainly is fluid.”

In addition to flooding and quake damage, and a toll of dead and missing in the thousands, the Japanese are still struggling to contain the damage from a crippled nuclear power plant.

The bulk of Japan’s auto-making plants are not in the hardest-hit areas, but plants and suppliers in the area did suffer damage.

Japan also accounts for 60 percent of the world’s silicon, used in making semiconductors, and it produces nearly a fourth of the chips employed across a wide range of consumer electronics. Because of their fragility, concerns also have arisen about global supplies of semiconductors and other components for electronics since the quake.

Nissan, Japan’s second-largest carmaker, also extended its production stoppages in Japan. Production at four of its Japanese plants has been suspended until Sunday, and output at two others has been reduced.

“Although all plants, except for the Iwaki engine plant, have been able to repair some damaged facilities and equipment, it is still taking time to arrange delivery of parts from our suppliers,” Nissan said.

It said its U.S. facilities “remain operational and will continue to operate on a planned production schedule.”

Honda Motor Co. had already halted auto-making operations this week.

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