The auto industry disruptions triggered by Japan’s earthquake and tsunami are about to get worse. Oil prices rose sharply this week amid fighting in Libya, where the coalition decided to intervene after a ceasefire declared by Muammar Gaddafi quickly ended.
Before the civil war erupted last month, Libya accounted for roughly two percent of global oil production. Today, this country has stop almost the entire production!
Already, many car-makers have warned that the continuously rising oil price posed a “real challenge” for the industry. Office for Budget Responsibility (OBR) steering committee member Stephen Nickell said last week the “biggest risk” to the UK economy would be if oil prices rose further, as inflation would not fall back in 2012 as expected, which could result in weaker consumption.
The National Automobile Dealers Association (NADA) says that the hike in gas prices has pushed people to buy used cars. That trend could gain momentum if there are fewer new models to choose from.
But that’s just half of the problem.
For those who don’t known about one in every five microprocessors is made in Japan according to USA Today, and many are made at plants that were severely damaged in the March 11 earthquake and tsunami.
At least half of Japan’s auto production will still be shuttered by early May, a leading research firm, IHS Automotive, predicted Thursday. And because so many other auto plants around the world are dependent on parts from Japan, about one-third of vehicle production globally is expected to grind to a halt during that time.
“This is the biggest impact ever in the history of the automobile industry,” says Koji Endo, managing director at Advanced Research Japan in Tokyo.
The impact already has hit the U.S. General Motors idled an assembly plant in Shreveport, La., and cut engine production in Tonawanda, N.Y. GM’s Opel unit in Europe has suspended operations at plants in Spain and Germany.
Mazda has already stopped taking new car orders in America. It’s the first manufacturer to take action, but it’s unlikely to be the last. A spokesman for Mazda UK said the firm had sufficient stock for the next three months, but added it was monitoring the situation in Japan daily.
Ford Motor Co. has instructed its North American dealers not to make new car orders in certain colors because the paint is sourced out of Japan and the recent earthquake has disrupted supplies. The restricted colors are tuxedo black, royal red, red candy and red fire.
Effect: Prices to rise!
A revival in the worldwide economy is also driving up car sales and rekindling interest in some luxury makes like Lexus and Infiniti, many of them from Japan as well. So the supply crunch caused by the quake comes at the same time that demand is improving, which is why some prices are likely to rise and a few models may become hard to find.
In Japan, Toyota Motor Corp halted most operations at 18 factories that assemble Toyota and Lexus vehicles in Japan. It has restarted production of three hybrid models, the Prius, Lexus HS250h and CT200h, from March 28 at two factories but will suspend output for one day this week, on March 30.
Honda Motor Co extended its production halt in Japan to April 3.
Mazda Motor Corp said on Thursday it would suspend production of vehicle repair parts and parts for overseas production at its Hofu factory in Yamaguchi on March 28, after having resumed limited operations
Suzuki Motor Corp will keep car production halted at its three assembly plants in Japan through March 29.
Since the March 11 earthquake, share prices of Nissan, Toyota and Honda have fallen 13.3%, 7.2% and 6.7%, respectively. General Motors shares have been flat, closing Thursday at $31.39, while Ford shares are up 7% to $15.04.
IHS estimates that for each day Japanese light-vehicle production is shut down, the result is a production loss of about 37,000 vehicles. Goldman Sachs estimates the shutdowns are costing the Japan automakers $200 million a day, which adds up to $2.8 billion for just the past two weeks.