The Japanese Earthquake’s Effects on Car Buying

Edmunds Experts Answer Car Shoppers’ Questions

In the aftermath of the devastation wrought by the earthquake and tsunami in Japan, U.S. car buyers have questions about the effect this catastrophe will have on the makes and models they’re interested in buying. And Edmunds has answers. Please let us know your other questions, via comments on this story or through Twitter and Facebook.

 

Q: With all that’s going on in Japan and the rest of the auto industry, should a car shopper buy now or buy later?

A: If you had any notion about buying a vehicle in the next few months, there is no downside to buying now — and plenty of possible upside, says Edmunds CEO Jeremy Anwyl.

 

Q: Will there be shortages of certain models?

A: There is certainly a risk of this happening, but it doesn’t look likely from the information Edmunds.com has at this time, says Jessica Caldwell, Edmunds director of pricing and industry analysis. Edmunds has compiled a list of vehicles made in Japan that are at the most risk of having shortages, headed by the Nissan Leaf, which is available in a limited supply to begin with. A list of all Japanese-brand cars that are made in Japan is at the end of this FAQ.

 

Another factor that could drive shortages is rising gas prices and the increased demand in the U.S. for fuel-efficient and hybrid vehicles. All Japanese-brand hybrid models are built in Japan, as are several fuel-efficient vehicles that were popular in the gas shock of 2008, including the Honda Fit and Toyota Yaris. With increased demand, there could be constraints on availability and options. However, most closed production plants in Japan are scheduled to open the week of March 21, so it is unlikely at this time there will be shortages. The ongoing risk is the uncertainty around the quake and tsunami’s effects on part suppliers and whether transportation and deliveries within Japan will be disrupted.

 

Q: What’s the situation with the Prius supply? Isn’t it only built in Japan?

A: That’s right. Like other Japanese-brand hybrids, it’s only built in Japan. The automaker’s latest update reveals that inventory levels for the Prius are adequate, and only one of the three plants that produce hybrid batteries was affected by the earthquake.

 

Q: Will car deliveries be delayed?

A: There are several operational ports that are currently shipping vehicles from Japan, Caldwell says. If Japanese plants continue to receive parts and supplies and the highway systems in Japan can allow for delivery of vehicles and supplies, there is no indication that shipments will be delayed. However, if production is slowed for any particular model, there could be delays in availability.

 

Q: Did prices for Japanese cars immediately go up after the earthquake and tsunami?

A: No, according to a commentary by Michelle Krebs, Edmunds Auto Observer editor in chief. An Edmunds.com analysis of actual transaction prices paid for popular vehicles that are built in Japan and imported to the U.S. — vehicles like the Acura RL, Honda Fit, Subaru Impreza and Forester, and Toyota Prius — showed no change in prices that consumers have paid since the disaster hit on March 11. In fact, profit margins on those models showed absolutely no change even over the weekend of March 12-13. (Weekends are when those margins are typically higher.)

 

Q: Going forward, will the prices of cars built in Japan be affected by this disaster?

The short answer is maybe, says Edmunds Chief Economist Lacey Plache. There are several factors related to the earthquake that could affect prices of Japanese-built cars.

 

In the short term, consumers are unlikely to see substantial increases in prices. Current incentive programs are in place through the end of March, so it is unlikely that any price increases due to lowered incentives will show up before then. Also, automakers and dealers typically have adequate inventory to cover two months of sales at any given time for most models, so it’s unlikely that shortages would lead to short-term price increases. While demand spikes due to supply concerns could reduce the two-month cushion provided by inventory, it is still large enough that supply-side factors are unlikely to lead to higher prices in the short run.

 

In the longer term, pricing for Japanese-built cars could be affected, to the extent that Japanese automakers have a diminished ability to offer incentives due to costs of reconstruction in Japan.

 

The prices of cars built in Japan also could increase if the prices of components rise because of shortages or because of higher prices for key parts, for example. Production costs also could increase if energy costs rise as a result of any diminished output from Japanese power plants. Those production-cost increases could be passed on to car buyers.

 

Prices on cars built in Japan could rise if carmakers halt production long enough for supply to be affected. Prices also could increase if consumer fears of potential future shortages, quality issues or net price increases lead to runs on certain models.

 

Car shoppers should also be alert to on-the-lot markups that dealers might attribute to the situation in Japan. Some dealers could see this as a way to increase prices. Others might take the opposite tack and hold pricing in hopes of gaining local market share. The best way to avoid opportunistic price hikes is to check True Market Value (TMV®) for the cars you’re interested in and obtain quotes from several dealers’ Internet departments, say Caldwell and Ronald Montoya, Edmunds consumer advice associate.

 

Q: Will prices increase on Japanese-brand cars built in the U.S.? How about cars from automakers that aren’t based in Japan?

A: For Japanese-brand cars that are built in the U.S., it’s similar to the situation for cars built in Japan: Short-term price increases are unlikely, but longer-term effects are possible, Plache says.

 

For example, if Japanese carmakers lower or don’t raise incentives on their American-built cars because of their need to spend those funds on recovery efforts at home, net prices on all their products — including those built in the U.S. — are likely to be affected. Any such effects, however, are unlikely to show up before the end of March.

 

When it comes to non-Japanese carmakers, there are a couple different scenarios for longer-term price effects: If Japanese automakers lower or don’t increase incentives on their vehicles, non-Japanese automakers with competing vehicles will face less pricing pressure. They could respond by lowering their own incentives, because the competitive pressure is off. Or they could leave the incentives where they are.

 

On the other hand, non-Japanese automakers could choose to maintain or even increase incentives in a bid to gain market share. Any such effects are unlikely to appear before the end of March.

 

Shortages of parts from Japan for cars built outside Japan could conceivably affect their pricing, Plache says. But the two-month inventory of finished cars should provide a cushion against parts shortages for cars built outside Japan. That, in turn, will keep pricing pressure at bay in the short run.

 

Q: Will the earthquake in Japan affect the production for non-Japanese automakers?

A: It’s possible, says Plache and Karl Brauer, Edmunds senior analyst and editor at large. There are many models on sale today that use components built in Japan by Japanese suppliers. The transmission in the Chevrolet Volt comes from Japan. Japan is BMW’s source for semiconductors. Even if just one component is unavailable, it can delay the production of a vehicle built in the U.S., Europe or other parts of Asia. Volvo announced March 17 that it had only a week’s supply of Japanese components on hand, for example. And on March 17, GM announced it would shut down its Shreveport assembly facility in Louisiana for a week due to a parts shortage.

 

It’s too early to say which Japanese supplier plants have been severely affected by the earthquake, Brauer says. There’s incomplete information at this time on which parts and which models are at risk. More information regarding the status of these suppliers should be available in the coming days. And when automakers know which of their suppliers are affected, they can project component shortages, consider substitute suppliers and estimate any delays in vehicle production.

 

Q: Will there be shortages of replacement parts for cars?

A: This is very difficult to predict right now, says analyst Ivan Drury. As noted, the status of parts suppliers is hard to ascertain. There are literally thousands of vendors supplying parts for any given vehicle line. It’s difficult to get a clear picture of where parts are coming from, and how critically low the supply of any particular part may be.

 

Toyota Motor Corp., for one, said it would resume production of replacement parts for vehicles already on the market beginning March 17, Caldwell says. This will allow the company to take care of current Toyota owners who may need repairs.

 

Q: Will vehicles damaged by water or the earthquake make it to U.S. shores?

A: Consumers shouldn’t worry about damaged vehicles ending up on dealership lots, Drury says. All automakers are paying close attention to the potential damage that recalls and quality issues could have to their brand. It would be too risky for any automaker’s reputation if they were to knowingly ship a damaged vehicle.

 

Q: I have a Japanese-built car on order. How will I know if its production is being delayed?

A: Stay in touch with the dealership that’s selling you the car, Drury advises. They should have current information on any delays in production for particular models.

 

If you’re a consumer who won’t start shopping for several months and one of the models that you’re considering happens to be a model built only in Japan, monitor the status of the automaker’s timeline for resuming production for that model, says Drury. Automakers are communicating the latest information through their Web sites, their U.S. dealers and media outlets. This is in their own best interest, Drury says. They don’t want to lose potential customers because of misinformation or a lack of information.

 

Q: If I’m shopping for a car whose availability is limited because of delays or supply-chain disruptions, is there any way I can use that leverage during a sales negotiation?

A: If you are a serious buyer, let the salesperson know that you’re not afraid to walk away if you don’t get the right price on a car you want, Montoya says. He’ll either make you a better offer on the vehicles he does have or suggest a comparable vehicle. Just make sure you check the TMV of the vehicle and get multiple offers from other dealers.

 

Q: So many Japanese-brand cars are made outside of Japan. What Japanese-brand cars are actually made in Japan?

A: Below is a list of Japanese manufacturers’ cars that are made in Japan, along with the cities in which their plants are located, if available. This can help you spot the plants’ proximity to the worst of the destruction in Japan. In some instances, models are produced both inside and outside Japan. Non-Japanese production cities and countries are included in those cases.

 

Article source: http://www.edmunds.com/car-buying/the-japanese-earthquakes-effects-on-car-buying.html