Archive for Japan Quake

With Supplies Dwindling, Some Honda Dealers Foresee Long, Dry Summer

With Supplies Dwindling, Some Honda Dealers Foresee Long, Dry Summer

Honda vehicles in Yokohama, Japan, bound for shipment.Tomohiro Ohsumi/Bloomberg NewsHonda vehicles in Yokohama, Japan, bound for shipment.

As it works to restore production capacity lost after the earthquake in Japan, Honda announced delivery delays this week of some of its most popular and fuel-efficient models built in Japan, including the Insight, the Fit and the redesigned Civic Hybrid.

Though widely anticipated by American dealers, the news came as other automakers — particularly Hyundai, Kia, Ford and General Motors — were celebrating record first-quarter profits, largely on the backs of new, compact, fuel-efficient models whose continued production and delivery through the summer is all but assured.

Honda guaranteed that March-April orders would be fulfilled for May-June deliveries. Beyond that, the brand has described its ability to fulfill orders as “fluid.” Some Honda dealers, however, are already feeling an inventory pinch.

“We knew this was coming. Most dealers around the country would tell you the same,” said Carl Bellizia, owner of Cambridge Honda in Cambridge, Mass., of this week’s announcement. “It’s an unprecedented disaster, and Honda has done a marvelous job of communicating to the dealers. And we understand they cannot make guarantees.”

While his inventory of Hondas built in Japan is dwindling, Mr. Bellizia does not feel that the laws of supply and demand justify significantly higher prices for those models. “Of course, prices will go up to some degree, but our A.D.M.U. (Additional Dealer Mark-Up) has not been above 1 or 2 percent over M.S.R.P., and we’ve even discounted some of these models if we think a customer will return to us for service or future sales.” he said. “People have long memories, and we don’t want to gouge anybody.”


Rick LeMaire, the general manager of Largo Honda in Florida City, Fla., foresees challenges.

“We’ll be taking a lot of vacations this summer,” he said. “We have a rather large facility — six floors, with four dedicated just to parking inventory. But we’re already walking through a lot of emptiness.”

Largo Honda hopes to compensate for the shortfall with more sales of preowned cars. “But preowned sales are dependent on trade-ins,” Mr. LeMaire noted, “and without new cars to trade in for, the customer won’t necessarily be coming to the dealership.”

The success of small cars from Korean and American manufacturers comes at the expense of sales from Japanese brands, Mr. LeMaire said, as he recalled a recent conversation with a colleague in his auto group, a Nissan dealer.

That dealer, he said, had told him that the Hyundai dealers outsold the Nissan dealers by 46 percent last month in their region.

Dealers who project good stocks of Civics — nonhybrid versions of which are assembled in North America — can at least try to convince would-be hybrid consumers of the merits of the base compact car, which is rated by the E.P.A. at 39 miles per gallon in highway driving.

“Some people who come in and want a hybrid, they want it for the fuel economy,” said a sales representative at Fletcher Jones Honda in Chicago, who agreed to speak on the condition of anonymity. “But the hybrids cost more, so it may take five years for somebody who doesn’t drive much to see a cost benefit.” In such cases, the customer would be steered toward a Civic, the representative said.

Keith Rey, the general manager of Marin Honda in Corte Madera, Calif., says he is operating with healthy inventories of the affected models. “I think it would be news if we were running base supplies similar to the Toyota Prius, which always runs low — 8 to 10 days worth and that’s it — but we’re not in that position at all,” he said. “We’ll be down eventually, but that’s not going to change our business model.”

“Look back to Cash for Clunkers in 2009, when everyone was running low inventories,” he said, referring to the federal program that awarded rebates to motorists who traded in their cars for new vehicles. “We’re nowhere near those levels.”

Inventory shortages of the past, however, offer a finite number of lessons for dealers trying to adjust to an unprecedented calamity.

“When you’re so removed from the devastation, it can be difficult to think beyond the situation’s impact on you,” Mr. LeMaire, the south Florida dealer, said. “But this was exceptional in every way.”

Japan Quake May Cut Global Auto Output by About 30%, Researcher IHS Says

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Parts shortages caused by Japan’s record earthquake may reduce global automobile production by about 30 percent, research firm IHS Automotive said today.

If parts plants affected by the quake don’t return to operation within six weeks, global auto output may drop as much as 100,000 vehicles a day, said Michael Robinet, vice president of Lexington, Massachusetts-based IHS. The industry produces 280,000 to 300,000 vehicles daily, he said.

“Most vehicle manufacturers will be affected by this,” Robinet said in a telephone interview. “It will be very difficult for any major automaker to escape this disaster.”

About 13 percent of global auto industry production is down right now and production of about 320,000 vehicles has been lost, mostly in Japan, Robinet said.

Auto executives have refrained from forecasting lost production as their managers seek other sources for parts. If solutions aren’t found soon, most major automakers will experience disruptions by mid-April because supply networks are intertwined, Robinet said.

Automakers and parts suppliers around the globe are girding for possible shortages of key parts, especially electronics and transmission components, Robinet said. If carmakers can’t find alternate sources of parts, or if plants don’t come on line in eight weeks, as much as 40 percent of daily production may be lost, he said.

Lost Production

The third week of April could mark the start of more severe production slowdowns, IHS said. The industry may lose 1.2 million to 1.8 million vehicles by then and almost 3 million units within eight weeks, with about half of the losses coming from assembly plants outside of Japan, according to an IHS presentation.

“We could lose up to 5 million vehicles in a worst-case scenario,” Robinet said. “This will affect income for the entire year if this continues for an extended period of time.”

While the earthquake is “disruptive,” automakers aren’t likely to lose as much production as IHS’s worst-case scenario, said Jeff Liker, a University of Michigan engineering professor who studies the industry.

“It’s not the majority of parts, but rather a small number of parts that are critical,” Liker said in an interview. “There may be a part that is three levels down — an electric circuit board or something — that is needed. They will figure that out and find alternative sources.”

Honda Closings

Honda Motor Co., which today extended closings at two car- assembly factories until April 3, is one of the most exposed carmakers, Robinet said. The automaker has 110 suppliers located in the earthquake zone, and about 10 of them can’t say precisely how long it will take for them to recover, said Ed Miller, a spokesman.

Toyota Motor Corp. (7203), the world’s largest automaker, has shut down all vehicle-assembly plants in Japan until at least March 26. The company said it will resume production of three hybrid models in Japan on March 28.

General Motors Co. (GM) has idled two compact-car plants in Europe and a pickup factory in Shreveport, Louisiana, because of parts shortages. GM sent electronics parts from Shreveport to a factory in Kansas City, Kansas, where it assembles the more- profitable Chevrolet Malibu and Buick LaCrosse sedans, said two people familiar with the matter.

GM executives sent out a memo on March 18 asking employees to limit travel and expenses to only essential business. The move was a precautionary measure, said Sherrie Childers Arb, a spokeswoman.

Ford Motor Co. (F) hasn’t had any disruptions yet, said Todd Nissen, a spokesman.

Automakers can make up for one week of lost production with about six weeks of overtime, Robinet said. Japanese carmakers may not be able to make up the lost output in 2011, he said.

Shopper Alert: Popular Japanese Car Prices Could Increase Soon!

 japanese flag

Following the recent tragic events in Japan, there is going to be a metaphorical aftershock affecting that country’s auto industry, which could send prices higher around the world. Companies like Honda, Nissan and Toyota will struggle to meet demand. Therefore the economic law of limited supply will make it more expensive. And this applies especially to the Toyota Prius hybrid.

Right now, Toyota describes its current Stateside inventory as “adequate” and has said that it is “making every effort to minimize any long-term impact on Prius availability.” This is coming at a time when gasoline prices are rising dramatically and more buyers are looking for fuel-efficient cars.

Although Toyota makes many of its North American-market vehicles in the United States using 70 percent of components from local sources, that still means 30 percent coming from elsewhere. A production line can be held up by the lack of one little part.

Toyota and other carmakers also use a “just in time” system, where parts are delivered on site at the precise moment they are needed. This relies on a finely synchronized ballet between suppliers, haulage contractors and workers at the best of times. For Japan, this is pretty much the worst of times, with vast sections of the country’s infrastructure disrupted, including rolling blackouts because of power shortages due to stricken nuclear reactors. And the Prius is made solely in Japan, along with Scion and Lexus vehicles.

Even if car factories are open, several of the many suppliers may be affected. Usually there are three facilities that supply battery packs for Toyota’s hybrid vehicles. One is closed at the moment. A Nissan engine plant is still experiencing aftershocks. Immediately after the March 11 quake, Toyota shut down operations. As did Honda, Mazda, Suzuki, Mitsubishi, Subaru, Nissan and the Bridgestone tire company. Most of them plan to re-open around March 22. In all, there are 49 models made solely in Japan including 15 Toyota/Lexus/Scion models like FJ Cruiser, 4Runner and Lexus LX570. Mazda’s Mazda3, 2 and 5 and the Miata MX5, Subaru’s Forester and Impreza, and Nissan’s 370Z, Murano, Juke and Leaf, and Honda’s CR-Z and Fit are also on the Japan-only list.

“What we don’t know is how dealers will react,” said Juan Flores, director of vehicle valuation at Kelley Blue Book. “They need a diverse inventory to bring customers in. There might be slight increases, but we don’t anticipate any significant upward pressure on prices for the next 30 days.”

That’s because some cars are still in U.S. ports, awaiting delivery to dealerships. And factor in those already en route, having left Japan before the quake and subsequent tsunami struck. Once this supply has gone, we will have to see how quickly it can be replenished. But if this situation persists and manufacturers cannot return to a normal production schedule “it’s safe to assume that transaction prices will increase,” said Flores. “The dealers will dictate when and by how much. The Prius will be the canary.”

However, Flores noted that the 2011 Prius and 2011 Honda Civic are both currently being offered with favorable lease deals. “These promotions might have been put in before March 11,” he said. But the message is clear: don’t waste time if you want to buy a hybrid or other fuel-efficient car. And this isn’t just limited to Japanese cars. Japan supplies 60 percent of the world’s silicon, the stuff that goes in microchips – which go in cars, computers, phones, and all sorts of other products made and sold around the world.

Help Japanese Victims of the Quake

Looking for legit ways to help victims of Japan quake? American Red Cross: 800-RED-CROSS;
AmeriCares: 203-658-9500;
Habitat for Humanity International: 800-Habitat;