Friday, March 25, 2011

Earthquake in Japan and Impact on Automotive Industry


Impact of Great Tohoku Earthquake on the Automotive Industry and on Personal Mobility

Comment by Vivek Vaidya, Vice President Automotive & Transportation, Frost & Sullivan Asia Pacific:

“The Great Tohoku Earthquake has a profound impact on the global Automotive Industry. It is a triple disaster of unprecedented levels, and despite good news from the nuclear power plant Fukushima, the problem is far from over.

The Automotive industry is one of the worst hit industries by the earthquake and its consequences and the impact is profound, not only on Japanese OEM’s and suppliers, but on the global Automotive industry as a whole. For Japan the short term effects encompass a production stoppage, a shortage of parts and an overall impact on the financial performance of the country. For the global industry it will mean a production stoppage in the U.S. and Europe, coupled with a stronger emergence of U.S., European and Korean brands.

These short term effects would seriously impact the financial performance of Japanese companies. A stop in production would lead to the loss of revenues and result in the inability to makeup for the shortfall within this financial year that ends on March 31, 2011. The impact on the supply chain remains still unclear. Normal operations may not resume unless the entire supply chain will be back to normal. On top of this, the logistical challenges remain unsolved.

While the impact on the supply chain of Toyota is on a medium level with a production loss of 40,000 to 50,000 units during this period for Honda it is very high with a production loss of 30,000 to 35,000 units and for Nissan, with a production loss of about 25,000 units, at the lower end. It is however, possible for each of these companies to cover up for this shortfall in 2011 if the underlying demand remains strong.

Considering the fact, that a production cut or stoppage in some plants in US and Europe might be due to the fact that components such as batteries are sourced from Japan, this short term impact on the global industry will provide a window of opportunities for Korean component manufacturers.

Ford and Hyundai and other competing brands will have growth opportunities due to the fact that a shortage of certain models would lead to higher sales, since fast moving models, such a Prius, Insight, and Fit are hit by the disaster.

Ford’s line-up of hybrid cars would get a boost, since the company’s dependence on Japanese components is low. The situation is similar for Hyundai, whose dependence is almost non-existent, and the company’s line-up of compact cars could be affected advantageously. GM’s overall gain in market share would be moderate though, since the company’s Shreveport plant stopped production due to the lack of Japanese components.

Looking at the long term effects, the direction of the Japanese market might be affected by two contradictory developments. A rising Yen, which has appreciated by 3.75 % during the last ten days already, might hurt the profitability of Japanese companies. On the other hand, the reconstruction of the country would provide an impetus to the Japanese economy, by creating an economic activity and a demand for the replacement of cars, which might mean a re-conceptualization of the supply chain.

The global long term effect will move the focus on the energy portfolio and proven technologies, like clean diesel technology or natural gas  technologies. Governments might re-asses their energy portfolios in light of this incidence and new safety norms for nuclear and other forms of renewable energies would emerge, accelerating a diversification in relatively safer technology areas. At the same time green technologies based on IC engines would get a boost, while EV plans founded on nuclear energy might experience a slow down.

Based on Frost & Sullivan’s current global research on global urban mobility patterns, commuters currently show a higher preference towards innovative mobility solutions such as carsharing and car pooling than to EV or Hybrid vehicles. Frost & Sullivan believes that this trend will be further strengthened by the Tohoku Earthquake, thus leading to a big boost for alternative forms of mobility in the future.”

This was also covered in a few publications


Bloomberg TV


Kenya Broadcasting Corporation


The Financial Times