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What the Disaster in Japan Means for Car Buyers Here

Amid the humanitarian crisis in Japan, it may seem crass to wonder what the earthquake, tsunami and ongoing nuclear emergency mean for car buyers in the United States. But, with Japanese brands accounting for nearly 38 percent of new car sales in the U.S. in 2010, what happens there affects car buyers here. Japanese plants make up 15 percent of car production worldwide. Most analysts agree that disruptions to production in Japan will lead to rising new car prices in the near future.

How Will Our Supply of Japanese Cars Be Affected?

After watching news footage of the tsunami swamping ports full of cars waiting to be shipped overseas, it’s easy to think that there will be an immediate shortage of Japanese cars in the United States. However, few cars slated for sale in the U.S. were lost. The footage most people saw showed the destruction of 2,300 Nissan and Infiniti models awaiting transport; other automakers haven’t reported similar losses.

The bigger obstacle to the supply of Japanese cars in the U.S. is stalled production. Rolling blackouts (a result of the nuclear power plant crisis) have curtailed production capacity, and limited power means limited production. IHS Automotive says that worldwide automotive production could drop by 15 to 30 percent this year – that’s a significant drop in the supply of cars available to buyers. Right now, IHS says, 13 percent of the world’s automotive production capacity is offline. If demand remains high, that means you could pay higher prices.

Another twist to the supply of Japanese cars for the U.S. market is that many Japanese car companies build the models for the American market on U.S. soil. Those facilities aren’t hamstrung by rolling blackouts or damage. Instead, they're limited by the parts they can get.

 How Will Parts Shortages Affect U.S. and Japanese Assembly Plants?

Japanese parts suppliers are facing the same issues as Japanese car companies. Plants have been damaged and power is in short supply. Car companies use a complex web of parts suppliers, and simply switching out one component for another isn’t an option. Even if Japanese assembly plants start up again, they may not be able to get the parts they need to build cars. The parts drought could continue for some time. Ten Honda parts suppliers are located in the evacuation zone around the Fukushima power plant and are unable to enter their plants.  When they do regain entry, some suppliers say it could be eight weeks before they are at full production.  IHS Automotive says that half of Japan’s automotive production will still be shut down in May.

Japanese automakers aren’t the only ones that use parts from Japanese suppliers. Japan is responsible for 20 percent of the world’s semiconductor production, so car components like computers and dashboard displays often rely on Japanese suppliers. Japan also builds and exports 2.5 million engines each year, and sends 2 million transmission units to North America. The transmission for the Chevrolet Volt, for example, is built in Japan. The Louisiana plant where the Chevrolet Colorado and GMC Canyon pickup trucks are built was idled due to a parts shortage (it has since reopened). Ford has asked dealers not to order cars in the company’s “Tuxedo Black” and three shades of red paint because a supplier that makes the pigment for those paints is in the evacuation zone around the Fukushima nuclear power plant.  Chrysler has made a similar request.

The impact of these issues will vary from model to model. Of the models that Honda sells in the U.S., 80 percent are built here. The Honda Civic and Honda Accord, for example, are built in the U.S. and get their parts from domestic suppliers, so shoppers shouldn’t expect to see decreased supply or increased prices.  For Nissan and Toyota, 70 percent of models sold in the U.S. are built here, but the Toyota Prius and the entire Scion lineup come from Japan.  Toyota has restarted Prius production for now, but production will continue only as long as parts are available. If you’re shopping those models, inventory could run short.

What Do Supply Issues Mean for Car Buyers?

It’s very tough to say what the supplier problems mean for specific car buyers since most car companies don’t reveal which suppliers they use for individual parts as they don’t want competitors to know what deals they have in place. Still, most analysts report that reduced supply may not be felt right away because most car dealers try to keep a 30 day supply of cars on hand. Once that supply gets exhausted, however, you may have a hard time finding the exact car you want. Jesse Toprak, VP of Industry Trends and Insights for TrueCar.com, says that the true impact of the supply issues will be felt when the current new car inventory begins to run out.  That will be at the end of April for most brands.

The supply issues will impact different models in different ways. Nissan it keeps a 50-day supply of cars on hand or in transit, so Nissan buyers may not notice any supply problems.  Subaru, on the other hand, only has a 30 day supply of cars, so they may feel the supply pinch sooner. Honda has announced that it will temporarily stop taking orders for the Honda Fit, Civic Hybrid, Insight Hybrid and the Acura TSX, TSX Sport Wagon and Acura RL. Mazda has asked its dealers to stop taking orders for the Japan-built Mazda2, Mazda3, RX-8, MX-5, CX-7 and CX-9.

Cars that are built solely in the U.S. with few Japanese parts shouldn’t have any issues with their supply chain. Unpopular models also likely won’t be affected because demand for them will be low. But, popular models that are built in Japan could soon be in short supply. The Toyota Prius is in demand because of rising gas prices, and it’s built in Japan. Toyota says it has a 60-day supply of Prius models in the U.S., but when gas prices last surged in 2008 they were down to a seven-day supply. Decreased production combined with high demand could make it difficult to find the car you want.

How Will Prices Be Affected?

The decreased supply of new cars and car parts not only means that it may be harder to find the exact car you want, but you may also have less room to negotiate. The damage and halted production are costing carmakers lots of money – one estimate says Toyota is losing $70 million each day their Japanese factories are closed. That means they’ll have less to spend on discounts or incentives. Most industry analysts say that this should lead to higher prices for all brands because carmakers tend to keep their incentives in line with what their competition is offering. That means if major Japanese brands let up on their incentives, other companies will follow suit.

TrueCar.com, which tracks new car sale prices, says that prices for models built in Japan have already started to rise. The Honda Fit, Insight and CR-V, as well as the Toyota Yaris and Prius are selling for five to ten percent more than they were before the earthquake as dealers try to use higher prices to manage their inventory.

What Should You Do?

With so many unknowns, it’s important to do your research before you head to the dealership. Analysts predict that car buyers won’t see higher prices or decreased supply industry-wide for a few weeks, though prices on models that are built in Japan and have high demand are starting to rise.

If you’re shopping for a new car now, make sure the dealer isn’t trying to capitalize on predicted price increases; comparison shop and get price quotes from multiple dealers to make sure you’re getting a fair deal. You can also find a comparable model that isn’t affected by shortages or price hikes. The Mazda2 is built in Japan and, due to the disaster, dealers have been told to stop ordering it.  But, the Mazda2 is very similar to the Ford Fiesta, which is built in Mexico and doesn’t have the same supply issues.

Waiting until the kinks in the supply chain are worked out is another strategy. With analysts predicting that the disruption should last about 12 weeks –that’s until mid-June -- you could wait to buy a new car until supplies and prices stabilize. If you do manage to save money on a new car, you might consider giving some of that cash to relief efforts in Japan.