Quake may prompt auto industry to revisit supply chain, expert says

Quake may prompt auto industry to revisit supply chain, expert says

Automotive News | March 30, 2011 – 12:01 am EST

DETROIT (Reuters) – The parts shortages and resulting production shutdowns caused by the Japanese earthquake and tsunami could prompt the global auto industry to rethink how it sets up its supply lines, a top industry economist says.
“What this says is that there might be some cracks, some inefficiencies, some unplanned-for problems not only in nuclear power plants, but in our global supply system for the auto industry,” said Sean McAlinden, chief economist for the Center for Automotive Research.
“We may have consolidated our suppliers too much,” he added. “We may have shared parts across too many models. We may have built regional models with global parts, which means lines will go down here for cars that don’t sell anywhere else, really. And maybe there will be some pull-back because of this particular disaster. Who knows?”
Numerous automakers, including General Motors Co , Ford Motor Co., Toyota Motor Corp., and Honda Motor Co. have closed factories or scheduled downtime for plants due to shortages of parts coming from Japan.
About 13 percent of worldwide auto output has been lost due to parts shortages and IHS Automotive has estimated it may cut output by as much as 30 percent within six weeks in a worst-case scenario.
On Tuesday, Toyota told its North American dealers to curtail orders of such replacement parts as steering wheel covers, shock absorbers, airbag sensor parts and mudguards to ensure an adequate supply.
Also on Tuesday, Honda said it was cutting production at its U.S. and Canadian plants, but was not specific to what degree or where.
McAlinden said simply shifting some of the affected parts work to China will not solve the problem, especially if the next disaster happened to hit that market, and suggested North America could see more investment as a result.
“The cracks and inefficiencies and the contradictions of globalization I think are starting to appear,” he said. “We’re not sure exactly what that means yet, but that could call for a redesign of the global auto industry.”
Auto consultant Dennis DesRosiers called the Japanese companies masters of the supply chain and said he expected second- and third-tier suppliers from Japan to possibly invest more in the North American market.
McAlinden said the parts shortages will soon be felt in North American ports.
“In about two weeks, we’ll start seeing empty ships or no ships arriving in a number of ports,” he said. “Remember, there are 30,000 parts to build a car. We might see an impact on practically every production line in North America and most of Europe because of this supply interrupt, this black swan for the global auto industry in Japan.”
Black swan is a term coined by best-selling author Nassim Nicholas Taleb to describe a surprise event that has a major impact.

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