Global car crisis looms as Japan struggles

The auto industry disruptions triggered by Japan's earthquake and tsunami are about to get worse. In the weeks ahead, car buyers will have difficulty finding the model they want in certain colours, thousands of auto plant workers will likely be told to stay home, and companies such as Toyota, Honda and others will lose billions of dollars in revenue.

More than two weeks since the natural disaster, inventories of crucial car supplies—from computer chips to paint pigments—are dwindling fast as Japanese factories that make them struggle to restart.

Because parts and supplies are shipped by slow-moving boats, the real drop-off has yet to be felt by factories in North America, Europe and Asia. That will come by the middle of April.

Much of Japan's auto industry—the second largest supplier of cars in the world—remains idle. Few plants were seriously damaged by the quake, but with supplies of water and electricity fleeting, no one can say when factories will crank up. Some auto analysts say it could be as late as this summer.

Hitachi Automotive Systems, which makes parts such as airflow sensors and drive control systems, is waiting for its suppliers to restart while dealing with its own problems. Its plants are without water and gas, and have rolling electricity blackouts. Workers are repairing crumpled ceilings, fallen walls and cleaning up shattered glass. A spokesman says he doesn't know when its plants will reopen.

The uncertainly has suppliers, automakers and dealers scrambling. And it exposes the vulnerability of the world's most complex supply chain, where 3,000 parts go into single car or truck. Each one of those parts is made up of hundreds of other pieces supplied by multiple companies. All it takes is one part to go missing or arrive late, and a vehicle can't be built.

When General Motors briefly shut a pickup plant in Shreveport, La., due to a lack of parts, it caused the partial closing of a New York factory that supplies engines for those trucks. Sweden's Volvo has warned that its production could be disrupted because it is down to a week's worth of some parts.

Car buyers will soon see higher prices and fewer choices. Some car colours will be harder to get because a paint pigment factory in Japan was damaged and shut production.

As a result, Ford is telling dealers to stop ordering "tuxedo black" models of its F-150 pickup and Expedition and Navigator SUVs. It's also shifting away from some reds. The moves are precautionary, Ford says. Chrysler told dealers it was temporarily restricting orders of vehicles in 10 colours.

That worries some dealers, especially when popular colours like black could be in short supply

Customers also face rising prices for models like Toyota's Prius, which is made only in Japan. Fears of falling supply have some dealers driving a hard bargain with customers who want the fuel-efficient hybrid as gasoline prices rise. Recent discounts of 5 to 10 per cent on that car are disappearing.

Japanese carmakers, who have shut most of their domestic plants, are warning that some of their overseas factories will stop running, too, in an effort to conserve supplies.

Toyota and Honda expect shutdowns at North American plants. Honda says production could be interrupted after April 1. Even though most of its parts are sourced in the region, a few critical ones still come from Japan.

Goldman Sachs estimates the shutdowns are costing the Japan automakers $200 million US a day, which adds up to $2.8 billion for just the past two weeks. Each week of continued shutdowns costs $1.4 billion.

By comparison, Toyota made $2.3 billion US in all of 2010, and its sudden acceleration recalls cost $2 billion US.

The cost of damage from Japan's natural disaster could dwarf that recall, which was considered Toyota's biggest crisis ever.

From CBC News