World's auto parts supply threatened by Japan earthquake

The world's auto parts supply chain is being threatened by the devastating earthquake and ensuing tsunami in Japan, according to the latest Global Auto Report released on Tuesday by Scotia Economics, one of Canada's five biggest bank.

"Japanese automakers continue to extend their vehicle production shutdown following the March 11th earthquake and subsequent tsunami," said Carlos Gomes, Senior Economist of Scotia Economics. "Production cutbacks are also increasingly spreading outside of Japan, as shortages of key auto parts emerge in many countries, especially in other Asian nations. However, global vehicle demand remains strong and assemblies will bounce back sharply once conditions stabilize in Japan."

Assembly plant shutdowns in Japan have led to losses in vehicle production of about 37,000 units per day since the earthquake, with cumulative losses approaching 400,000 units through March 25th. These plant closures alone will lead to at least a one percent drop in Japan's industrial activity in the month of March, as autos are the second-largest manufacturing sector, accounting for 13 percent of overall industrial activity.

Several assembly plants of Japanese automakers outside of Japan have already started to be impacted by component shortages. For example, a major Japanese car manufacturer has stopped overtime operations at 14 plants in North America. If these closures spread, the impact on the global auto industry could be greater than the shutdowns in Japan. Japanese automakers produce 1.3 vehicles outside of Japan for each car or truck assembled domestically.

According the report, the risk is greatest for electronic products, such as semiconductors and infotainment systems, as well as for chemical resins used to make automotive paint. Japan supplies 21 percent of global semiconductors and is a major producer of integrated circuits and sensors for automobiles.

The United States is the world's largest auto parts importer at more 43 billion U.S. dollars annually, including 7.6 billion U.S. dollars from Japan, creating significant risk of parts shortages. However, roughly 80 percent of all auto parts used in assembling new vehicles in the United States and Canada are produced in North America - the United States, Canada or Mexico.

Japanese-made parts now account for only about a six percent share of all auto parts purchased in Canada and the United States.

"We believe that the greatest risk remains in Asia, as nearly half of all Japanese auto parts shipments are destined to China and other Asian nations," concluded Gomes.