Impact of Japan's Earthquake On The Auto Industry

The devastating earthquake that hit Japan yesterday will surely have serious consequences to world's car industry. Japan is a primary source for hybrid cars and hybrid batteries and high-end electronic control systems and in-car entertainment devices used in automobiles. All major Japanese car makers - Toyota, Honda and Nissan have reportedly shutdown numerous plants while Honda so far have reported one death and multiple injuries of its plant workers. The full extent of the damage to the Japanese auto industry and total number of plants still remained shut down are still unknown. All the ports of Japan remained closed so all export are currently halted, not just for cars, but all industrial exports from Japan.

The supply of Japan sourced vehicles to various markets all over the world, especially hybrid models will slow to a trickle in the coming weeks. It is not just Japanese car makers that are affected. Even European and American car makers manufacturing cars in plants outside Japan import various parts from Japan, including CVT transmissions, high thermal resistance plastics for engines, traction batteries for hybrids, stamped steel body parts, automotive electronics, safety devices like airbag modules etc etc.

Follow the latest developments live from BBC.

Insurance claims on damages are still unknown but is estimated to cost less than the damages inflicted during the 1995 Kobe earthquake. Below is a screen grab of an aerial shot by Japanese news agency NHK, showing damages at an unknown car holding yard damaged by tsunami, although some say the cars look like Nissan / Infiniti models.

While the one below is from BBC.


Separately, we would also caution against purchasing parallel / grey imported Japanese vehicles over the next 6 to 9 months. As always, the problem with purchasing parallel / grey imported cars is that vehicle history can be spotty. Which is why we always recommend paying a little bit more for an officially imported unit from an authorized dealer.

Update :
All local offices / representatives of Japanese car companies confirmed that there will be no immediate disruption to their supplies. Read more here. Of course the key word here is immediate. Corporate terminologies "encrypting" is obviously work. Heads of companies need to be very careful with their statements at this point of time. Stock prices of UMW (Toyota, Lexus and Perodua) and Tan Chong (Nissan) have taken a beating at this weeks's Monday opening.

Most manufacturing plants these days operate on the "Just-In-Time" principle to keep inventory cost down, although overseas plant outside of Japan are less extreme in stretching in the "Just-In-Time" practise because of logistics reason. In general, a supply chain can absorb supply disruption for about 10 days or so, assuming that demand remains the same. More than that, it is difficult to say. It would be even more critical for high-precision manufactured parts like transmissions and control electronics which a plant can usually only source from a single supplier. Other items like batteries, tires, weather strips etc etc can be easily sourced from multiple suppliers.

Plus, with chronic shortage of electric power - trains, including freight trains and factories remain offline. There are 54 nucler reactors in Japan, supplying 30% of Japan's electric power needs. Out of the 54 reactors, 11 have been shutdown. Out of these, 3 reactors at the Fukushima facilitiers are permanently damaged.

We hear conflicting reports on state of Japanese shipping ports. Major news agencies including BBC reports that all Japanese ports have been closed, while the highly reputable Aussie motoring publication GoAuto reports that Yokohama, Japan's second biggest shipping port remains operational. While car docking terminals in shipping ports of Nagoya (Toyota), Osaka (Daihatsu, Toyota) and Hiroshima (Mazda) remains operational. Cars that were already loaded there before the earthquake struck, are still being shipped out of Japan as we write.

However if production suspension continues, eventually our local inventory supplies will dry up, and it's going to take awhile between resuming of Japanese manufacturing operations and restocking of local supplies. As of now, no one can be certain when full production can resume as car manufacturers also depend on their suppliers to resume production, as well as all transport and freight services. As usual, priorities will be for larger more important markets of USA, Europe and China. For models like Lexus, Japan remains the only source (except for the American market Lexus RX), as are Mazda6 and higher range Mazda models, and most major hybrid models. JATCO remains the only major supplier of CVT transmissions, not just for Japanese cars but American and European models as well. These transmissions are primarily still made in Japan although there are plants in China and Mexico, but these are mainly for domestic China and North American market consumption. Rest of Asia and Europe continues to rely on Japanese manufactured units. While Denso is the largest supplier for automotive components for Japanese car brands.