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Auto industry braces for shortages Japan disaster cuts into supply chain

This could be a stripped-down summer for the auto industry.

As Japanese automakers struggle to resume production after the devastating March 11 earthquake and tsunami, the industry is bracing itself for shortages of microcontrollers, computer chips, sensors, LCD displays and paint pigments.

Japan is a major manufacturer of sophisticated electrical components. Consequently, options such as navigation systems, lane-departure warning devices, cooled seats and even some shades of red, black and white may be scarce at car dealerships in a few weeks.

"No one is immune," said Bill Visnic, senior analyst at "The battleground in the coming weeks will be over content. It may be that your dealer has a black color in the model you're looking for, but if you want a nav system, you'll have to settle for blue."

Choices will be limited for at least 60 days. Damage to assembly plants in Japan has reduced production there by more than 500,000 vehicles so far.

Earlier this week, Automotive News reported that supplies of many Japanese models could remain at half or less of their normal levels until July. Nissan told its U.S. dealers that they would receive only 7,500 vehicles in May -- compared with 40,000 in March, the industry publication said.

But the disaster in Japan will cut at least as deeply into the intricate supply chain that provides components for automakers worldwide.

The industry knows it suffered a hit, said Michael Robinet, director of production forecasting at IHS Global Insight. But because suppliers are spread among several tiers -- with Tier 3 and Tier 2 companies providing parts that Tier 1 factories assemble into components -- automakers still aren't sure just how badly they've been hurt.

"There's a bubble coming in the May-June time frame on parts, and nobody knows how big it is," Robinet said.

Before the catastrophe in Japan, manufacturers had about a two-month supply of vehicles and adequate inventories of parts and components for assembling cars and trucks.

The choke point is likely to be microcontrollers, the tiny computers that handle an array of functions in modern cars and trucks. The typical new vehicle is equipped with at least 50 of the devices, and some luxury vehicles have as many as 100.

A crucial factory in Japan owned by Renesas Electronics sustained so much damage that it may not be able to resume production until July. Renesas supplies about 40 percent of the microcontrollers that automakers use.

The Japanese Big Three assemble most of their vehicles for this market at American plants but get a small number of parts from Japanese suppliers -- as do domestic and European automakers.

"We should have plenty of vehicles," said Thomas Bies, general manager of Q Chevrolet-Chrysler-Jeep-Dodge in Irving, Texas. "But we might start seeing some shortages in loaded vehicles like the Tahoe LTZ and Malibu LTZ."

In the short term, most dealers expect sufficient shipments of new vehicles.

"We're not getting any reduction in our allocation next month," said Tom Durant, who owns Classic Chevrolet in Grapevine, Texas, and several other area dealerships.

Beyond that, "we just don't know," said Lee Chapman, president of the Dallas-Fort Worth Metropolitan New Car Dealers Association.

"As long as there's inventory available, dealers will continue to sell cars and trucks," Chapman said. "We're just not sure what the status is with inventory."

Luxury vehicles, compacts, subcompacts and hybrids will probably be hit hardest.

In addition, high prices and tight supplies of used vehicles will persist as consumers look for alternatives to hard-to-get new models, putting more pressure on the stressed used-car market.

With shortages of used vehicles already occurring at auctions, Brian Huth occasionally offers to buy cars from customers waiting for service work at Five Star Ford in Plano, Texas.

George Hoffer of the University of Richmond says these turbulent market forces could work in consumers' favor later this summer.

Once all the links are back in the supply chain, automakers will probably run their factories at full speed trying to reclaim lost sales, he said.

"After the Fourth of July, I see crash production by everybody to make up what was lost," he said. "We're going to have lots of cars coming onto the market at the wrong time, and I think we'll see lots of incentives."

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