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Automakers Face Component Shortages

Posted in auto industry, News by Kurt Ernst | March 19th, 2011 | Leave a Reply |

In the wake of the tragic events in Japan, it’s understandable that factories there will be slow to ramp up production of vehicles and components. In parts of the country, the infrastructure needed to get vehicles and components to ports for export remains damaged, and other parts of Japan are experiencing rolling blackouts to preserve electric power. Some plants are damaged, and require major repairs before production can resume. Even the most optimistic projections say it will be months before automobile and component production returns to near pre-quake levels, and the worst case scenario is a bit too puckering to even consider. As it stands now, even domestic automakers have been impacted by component shortages caused by the Japanese earthquake and tsunami. GM has temporarily halted truck production at their Shreveport, Louisiana, plant due to a shortage of components from Japanese suppliers. Since their inventory of trucks is healthy, GM doesn’t expect the supply shortage to impact sales. Yet.

Most modern factories work with “just-in-time” inventory models, which allows them to reduce exposure to unnecessary inventory costs. The downside to just-in-time manufacturing is that supply shortages bring production to a halt, which idles workers. If workers aren’t getting paid, they probably aren’t funneling money into the local economy, which has a huge impact on small businesses. If the production stoppage is temporary, this may not be cause for concern; if the production stoppage is long-term, then everyone from the manufacturer (who loses revenue from new vehicle sales) to the local businesses (where the auto assembly plant workers shop) suffers. Here’s the 800 pound gorilla in the room that no one is willing to address: we don’t yet know what the long term effects of the Japanese disaster will be on the auto industry, the Japanese economy, the United States economy or the global economy, and we may not know for weeks or even months.

Auto prices are based on supply and demand, and as supply dwindles and demand remains high, prices escalate. There have already been price increases on cars like Toyota’s Prius and Yaris, and it’s likely that demand will drive up pricing on other compact, fuel efficient models as well. If you’re in the market for a new car, my advice is to make a purchase decision soon, because I don’t expect prices to remain at current levels much longer.

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