Image: Wrecked Toyota Yaris compact sedans
Koji Sasahara  /  AP
Wreckage of Toyota Yaris compact sedans, export models made for the North American market, are shown destroyed in Sendai, Japan. U.S. car buyers may feel the effects of Japan's catastrophe.
Image: Paul A. Eisenstein, contributor
By contributor
updated 3/15/2011 4:22:04 PM ET 2011-03-15T20:22:04

While the immediate focus of Japan is on rescuing the wounded, recovering the dead and caring for survivors, the island nation is slowly coming to grips with the impact of last week’s natural disaster on its largest industry: automotive manufacturing.

The massive earthquake and the devastating tsunami that followed appear to have wrecked or washed out to sea thousands of new cars. The force of the natural disaster also crushed plants and left manufacturers large and small struggling to take stock of the damage.

Auto production is on hold at least temporarily, and it remains to be seen how long it will take to get production up and running again. The impact of the stoppage could be felt for months in Asia and around the world — by automakers, workers, investors and motorists, who could find some of their favorite vehicles in short supply.

  1. More must-see stories
    1. The Hartford Courant, Political
      Wild Wall St.

      Has the market volatility got you nervous? These cartoons may give you a little comic relief.

    2. Cyber-thieves create fake Kelley Blue Book site
    3. US says Reebok toning shoes don't really
    4. Can you live on $9 an hour? Play the game

“The disaster will have a huge impact, and not just in Japan,” said auto analyst George Peterson of automotive research and consultancy firm AutoPacific.

So far it appears that only one auto industry worker was killed while on the job during the quake — a Honda employee crushed when the wall of a cafeteria came tumbling down at the carmaker’s technical center in Tochigi.

But thousands of vehicles have been lost or damaged, including 1,300 Infiniti luxury cars swamped by the tsunami at a storage depot by the port of Hitachi. Nissan said at least another 1,000 vehicles were damaged at the port of Miyagi — one of the cities most badly damaged by the disaster.

Nissan, Japan’s second-largest automaker, has suspended production at four plants through at least Wednesday, with two other assembly lines out of operation through at least Thursday.

The carmaker doesn’t yet have an estimate of what that will mean in lost production, but Honda, which will shutter its plants through at least Sunday expects to lose production of 16,600 cars and trucks and another 2,000 motorcycles and scooters.

Toyota, which builds a larger percentage of its products in the home market than Nissan or Honda, also has shuttered production and expects to lose a minimum 40,000 vehicles of production. A spokesperson said the stoppage cost about 6 billion yen, or $72 million, in lost profits for every day the plants remain closed.

The timing couldn’t have been worse for Toyota, the world's largest automaker and Japan's biggest company.

Just days before the 8.9-magnitude quake, the automaker announced a plan to boost worldwide sales to 10 million and drive profits up sharply. In the long run, industry analysts suggest the current setback may have little impact on the “Global Vision” announced by President Akio Toyoda, but that could depend on the depth of the damage to Toyota’s facilities and that of its suppliers.

Part of the problem is that each auto plant depends on a network of hundreds of parts manufacturers, and it is unclear how badly those subcontractors have been impacted by the disaster, said Jim Hall of automotive analysis company 2953 Analytics. But “some assembly plants could feel it pretty soon,” Hall said, and the impact will be felt beyond Japan.

About half of all the Japanese-branded vehicles sold in North America are built in North America. But many of those factories still rely on Japanese parts makers for everything from engines and transmissions to the smallest “widgets,” notes analyst Peterson. If there is no additional source available for such components, U.S. car plants like the Nissan facility in Canton, Miss., or the Honda factory in East Liberty, Ohio, could be in trouble, he said.

Japanese factories traditionally rely on a “just-in-time” manufacturing system — where inventory is delivered to the factory by suppliers only when needed for assembly — but there’s a relatively long supply chain from Japan, so Peterson said the impact on those “transplant” assembly plants might not be felt until early April.

The impact of the crisis will likely vary from model to model, analysts say. Early signs suggest Honda could be hit particularly hard. Its Sayama plant, located in one of the regions of Japan hit hardest by the disaster, is a key assembly center, producing models like the Honda CR-V, Accord and Fit, some of them for export to the United States, as well as Acura’s RL and the TSX model. In addition, Honda said the Ogawa Plant, in quake-damaged Saitama, produces automobile engines.

For U.S. consumers, the situation might, at least briefly, repeat some of the product shortages experienced two decades ago when Japanese automakers agreed to so-called “voluntary” restraints on exports to the United States. That led to a sharp run-up in the price of Japanese automobiles.

Though he expressed hopes that car dealers will not exploit the situation, long-time automotive analyst Joe Phillippi of AutoTrends Consulting warned that “there is always a cohort of dealers who never let a good crisis go to waste. They will attempt to take advantage” by charging premiums if they believe anxious American customers will be willing to pay for Japanese products.

On the other hand, some observers believe this could give U.S. and Korean carmakers a great opportunity to eat into Japan’s market share.

But American automakers also rely on Japanese suppliers, and while they often use multiple sources for components, some key parts might come from just one supplier. In some cases, the absence of a single part could bring a whole plant to a halt.

The supply of automotive semiconductors is one big concern, said automotive analyst Rod Lache of Deutsche Bank. These are central components for digital automotive componentry, whether used in engine management systems, airbag controllers or infotainment systems.  Japan produces nearly a quarter of the world's automotive semiconductors, and the parts are highly sensitive to damage during the production process.

Japanese battery suppliers are also central to production of American hybrid-electric vehicles, such as the Ford Fusion Hybrid.

So, the crisis in Japan could create big problems to Detroit automakers, as well. Indeed, two Japanese automakers are already halting some production at North American factories to assess availability of parts following Friday's deadline earthquake and tsunami in Japan.

Subaru of America has suspended production at its plant in Lafayette, Ind. The plant, Subaru's only North American factory, employs 3,500 workers and built 150,000 vehicles last year, including the Outback and Tribeca wagons and Legacy sedan. A company spokesman doesn't know when production will resume.

Toyota is suspending overtime and production on Saturdays at all of its North American plants to assess the availability of car parts. Toyota is trying to conserve parts after the huge earthquake and tsunami, which is disrupting shipments from Japan to the U.S.

Japanese automakers Nissan and Honda have said their North American plants have not been affected.

The Associated Press contributed to this report.

Video: After quake, market falls, automakers shut down

  1. Closed captioning of: After quake, market falls, automakers shut down

    >> is hitting u.s. stock markets today. the dow fell more than 2% in early trading, now down 168 points. that was after tokyo's nikkei stock exchange posted a more than 10% drop, the biggest one-day drop since 2008 . japan is one of the biggest producer and sellers of goods worldwide. automakers, consumer electronics giants all suffered production losses because of the quake. we have our team from cnbc on what could be a growing economic crisis. melissa francis is at cnbc world headquarters and phil lebow in chicago. give me a sense of the mashlgts and how what's happening in japan is rippling around the world.

    >> we saw it right away overnight. you saw the nikkei drop. they have stabilized and come back a little bit as we saw futures in japan recover a little bit. mainly it's selling across the board. a liquidation everywhere you look. gold has been down, oil, silver, everything you see. it's been a tough day in the market, but right now it is stabilizing a little bit, so that's good.

    >> phil , when we talk about the car industry , is there an immediate impact?

    >> huge. they've shut down production through tomorrow for most of the japanese automakers. some extend those cuts through friday. the bigger concern, contessa, is not final assembly of these vehicles, but the parts makers, the special component makers, the electronics, semiconductors, a lot are based for the north of tokyo where we saw the earthquake and tsunami have a devastating impact. in fact, honda has been unable to reach some of its suppliers there. that gives you some sense of the uncertainties there. as a result what we start to see a pull-back not only in production in japan but in the united states . toyota's plant in georgetown, kentucky, they're cutting back on overtime so they conserve the parts they need that they're coming over from japan .

    >> for the u.s. automakers of japanese cars, are there other places they can source those parts?

    >> sometimes, yes. at this point it's hard to know for sure. they're still trying to figure that out. if they can, certainly they will. remember, these days your special components for a vehicle like the prius, most are made in japan for assembly in japan . you can't go wraen where in the world and get.

    >> when we talk about other consumer goods , apparently flash driv drives, the plants that manufacture flash drives are out of service. i was even reading about in the united kingdom a run on consumer electronics because of this. zeer

    >> that's right. so many components are made into japan that go into things that we use. tosihba makes flash memory that goes into apple. analysts say it it could get even worse from here, that 40% of the flash memory used around the world is manufactured in japan . that goes into all kinds of electronics. it's going to put a lot of price pressure on things.

    >> we had talked a lot about the threat of a double-dip recession. is something like this enough to spark that for us in the united states ?

    >> you know, people really aren't saying that yet. we don't really know what the impact is going to be. a lot depends on what happens with the nuclear situation. one thing about japan is it's a country that has been through troubles and rebounded in the past. the economy is controlled very closely by the government. they aren't afraid to get into spend to money to pump up the money supply . you know, no one is saying that yet. it's really a wait and see type thing.

    >> we wait and see. the dow jones industrials are down and off on the s&p 500 and the nasdaq. melis melissa, phil , thanks. appreciate that.

Explainer: Ten leaps forward in car technology

  • Image: Three-point seatbelt
    Volvo’s Nils Bohlin invented the three-point seatbelt in 1959.

    English physicist, mathematician and astronomer Sir Isaac Newton once famously wrote — with perhaps a touch of false modesty — that “If I have seen a little further it is by standing on the shoulders of giants.”

    Thus has the car industry incrementally improved from its primordial horseless carriage beginnings to the magic carpet ride of today’s almost incomprehensibly complex machines with their raft of safety, environmental and convenience devices adding to the basic transportation function.

    Here are 10 of the car industry’s most important technological changes.

  • 1886 Benz

    Daimler AG

    It all began with Karl Benz and his construction of a self-propelled, three-wheel vehicle powered by a single-cylinder 0.75-horsepower engine using a leather belt and two bicycle chains to transmit power to the rear wheels.

    However modest this beginning, with its exposed engine parts and whirling bits menacing anyone who examines it too closely, the 1886 Benz launched the industry and was the foundation of today esteemed Mercedes-Benz brand. (Maybe the leather upholstery was an early clue to the company’s luxury intent?)

  • 1912 Cadillac with electric starter


    The electric starter — invented by Charles Kettering at his Dayton Engineering Laboratories Co. (Delco) in 1911 — became standard equipment on Cadillacs in 1912, paving the way for all cars to feature electric starters. This accelerated the industry standardization of gasoline internal combustion engines over steam and electric designs. It also put more women behind the wheels of cars because prior to the electric starter they tended to avoid using difficult-to-start, hand-cranked cars.

  • 1914 Ford Model T

    Ford  /  Wieck

    Introduced in 1908, the Model T was just another low-end car from the multitude of regional manufacturers in this country. In 1914 Ford separated itself from its rivals and became (for a while) the world’s largest industrial concern as the result of the Model T’s assembly switching from small teams of craftsmen assembling each car to a moving assembly line of unskilled workers each contributing the same small bit to every car on the line. Construction time to build each car plunged from 12 hours and 30 minutes to 93 minutes, and the car’s price fell from $690 to $360, while annual sales mushroomed almost ten-fold and Ford doubled workers’ salaries to $5 a day.

  • 1930 Motorola car radio


    Next time a boom car rattles your windows at a stop light, think back to the days before Paul and Joseph Galvin developed the first commercially available car radio in 1930.

    The Motorola car radio overcame a host of challenges, including electrical interference, finding space in the car for the bulky radio components and making the radio durable enough to survive the pounding of primitive roads. The popular 5T71 radio debuted at the Radio Manufacturers Association convention in Atlantic City, N.J., following a demonstration drive from Chicago to prove its durability.

  • 1940 Oldsmobile Hydra-Matic transmission


    Today few new cars are sold in the U.S. with a manual transmission and a dwindling portion of the population even knows how to use one. We can credit this dismal state of affairs to the invention of the automatic transmission and its debut in the 1940 Oldsmobile.

    The original Hydra-Matic automatic transmission offered benefits in terms of efficiency that surpassed subsequent designs, but that approach was abandoned in pursuit of smoother gear changes, which were more important to drivers. The company touted the ability to navigate stop and go traffic and to park without stalling the engine as the automatic’s primary benefits, and those features continue to drive the technology’s appeal today.

  • 1946 Michelin radial tire


    Until Michelin developed the radial, tire design had evolved little from the dawn of the car industry. The radial moniker refers to the direction of the reinforcing belts, which are turned perpendicular rather than running parallel to the direction of travel as in bias-ply designs.

    The benefits include a more stable footprint, reduced fuel consumption, longer tread life and better handling. The near-absence of any kind of maintenance or attention required led the government to mandate tire pressure monitors in cars because drivers had long since stopped checking the condition of their tires.

  • 1959 Volvo three-point seat belt


    Volvo engineer Nils Bohlin invented the three-point seatbelt in 1959. The belt appeared in the automaker’s cars that year, and within a decade the belts were mandatory equipment in all cars sold in the United States.

    Bohlin’s background was in aviation, where he developed ejection seats, so he understood the necessity of securing the torso and not just the pelvis as the lap belt had done. The elegant simplicity of his solution is confirmed by the inability of newer seat belt designs to displace the three-point seatbelt 50 years on.

  • 1972 General Motors air bag


    While air bags didn’t become commonplace in cars until the 1990s, GM conducted a large field test of 1,000 1972 Chevrolet Impalas equipped with experimental air bags. Between 1974 and 1976, the company offered the world’s first production air bags in its cars, with the first appearing in a 1974 Oldsmobile Toronado. Though the company was prepared to build 100,000 air bag-equipped cars a year, only 10,321 were sold over three years despite a reasonable price of between $180 and $300 for the option.

    The Insurance Institute for Highway Safety confirmed the robust construction of the early system by testing two of the old cars in the 1990s. Neither car ran and even the radio and clock didn’t work in one, but the air bags still deployed perfectly in the institute’s crash lab.

    “What’s important to remember at this point is that the air bags GM put into those early cars worked fine,” wrote IIHS president Brian O’Neill in a 1993 letter to the New York Times.

  • 1995 BMW and Mercedes-Benz electronic stability control

    Mercedes-Benz USA

    These premium carmakers battled to be the first to introduce an electronic stability control system that automatically stabilizes a car in the event of a slide. Though these expensive V-12 models were the first to feature stability control, they quickly verified the technology’s value with significant reductions in crashes. Subsequent studies showed that stability control-equipped cars are about one-third less likely to suffer a fatal crash, a result that encouraged the U.S. government to mandate stability control for all cars starting in model year 2012. The real safety advantage of stability control is that in contrast to seat belts and air bags, which mitigate the damage that occurs in a crash, stability control prevents many crashes from happening in the first place.

  • 1996 OnStar telematics

    GM  /  Wieck

    In our increasingly connected wireless world, the notion that the car should connect to a network over which it can share information may seem like an obvious development. But it was less obvious in 1996 when GM’s OnStar division was launched, using analog cellular telephone technology to send information to drivers and to automatically report crashes.

    Today other carmakers have their own telematics services and each month OnStar is now responding to 2,300 crashes, 10,000 requests for emergency assistance and nearly 30,000 requests for roadside assistance.


Discussion comments


Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 3.79%
$30K home equity loan FICO 4.99%
$75K home equity loan FICO 4.69%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.83%
Cash Back Cards 17.80%
Rewards Cards 17.18%