Japan quake may cut global auto output by about 30%, IHS says

LOS ANGELES -- Production disruptions at automakers outside Japan could become more widespread by the third week of April as parts shortages caused by the 9.0-magnitude earthquake that rocked Japan intensify, according to a report issued today by forecasting firm IHS Automotive.



Such parts shortages could cut global automobile production by about 30 percent, the IHS report said.



Toyota said Wednesday it expects parts shortages to interrupt its assembly lines in North America soon. In Japan, production remained suspended indefinitely at the bulk of Toyota’s assembly plants, even as the automaker resumed limited production of its hybrid vehicles.



Honda said today it has extended vehicle assembly plant shutdowns in Japan from March 27 through at least April 3. The extended shutdowns underscore the damage sustained by Japanese suppliers, which experts expect to affect non-Japanese automakers in the coming weeks.



Matteo Fini, principal analyst for Supplier Business, a division of IHS Global Insight, expects production disruptions at vehicle assembly outside of Japan to become more widespread as parts in the pipeline run dry. Parts take between two and seven weeks to be shipped from Japanese suppliers to assembly plants in North America, he said.



“When that production already in the logistics pipeline is over, problems might become much more serious, both in North America and in Europe,” Fini said.



Components, parts at risk



Automakers around the world buy components from Japan. Products such as electronic components, plastics and rubber are already in short supply and could affect vehicle assembly plants outside of Japan, according to the IHS report. A variety of powertrain components are also sourced from Japan, Fini said.



For example, a Hitachi Automotive plant that makes airflow sensors was badly damaged by the earthquake and tsunami, the report said. Hitachi Automotive supplies about 60 percent of the airflow sensors used by leading automakers, including Ford, General Motors, Renault-Nissan, Toyota and Volkswagen, according to the report.



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 IHS. The industry produces 280,000 to 300,000 vehicles daily, he said.



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



Auto industry executives have refrained from forecasting lost production as their managers seek other sources for parts. 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.



Tier 2 crisis?



Anticipating such part shortages is a difficult task for automakers, supplier experts say.



Daniel Cheng, a leader of the automotive practice at suburban Detroit consulting firm A.T. Kearny, says automakers have a good grasp on their Tier 1 suppliers, the parts makers that sell directly to manufacturers. Tier 1 suppliers in turn manage their own network of suppliers that provide components and materials. The result is a supply chain without a central point from which disruptions in the lower tiers can be seen, Cheng said.



“An OEM will have a good understanding of its Tier 1 suppliers but not its Tier 2 and Tier 3 suppliers,” Cheng said. “That creates a potential blind spot.”



Fini says that lack of visibility into the lower tiers of the supply chain is still vexing automakers.



“After a number of days after the earthquake there are still problems understanding what’s going on,” Fini said. “The main problem is at the Tier 2 level. If parts are not flowing from Tier 2s to Tier 1s, you can imagine that there will be some disruptions.”