Impact of Japanese disaster on automobile industry

Updated: May 16, 2011

Upon hearing the news that Toyota had decided to delay production of vehicles in its Japanese plants for another week and that Honda had already done so, the immediate general response was that prices of Japanese cars will go up according to the law of supply and demand.

Talking about Pakistan’s perspective, it’s a little different from the global auto sector. The local auto market would see a negative impact as a strengthening Japanese Yen would put auto assembler’s margins under pressure. Pakistan imports completely knocked down kits which are assembled locally.

Therefore, if the supply of parts is scarce it would drive the prices upwards. Furthermore, uncertainty with respect to steel prices would be another major risk for these companies.

The analysts know more than what people about how car sales actually work. For example, Edmunds which is a provider of automotive information points out that auto pricing has a lot to do with the incentives that manufacturers offer to dealers. Those incentives give dealers more room to sell a vehicle at a lower price and still make a profit.

However, Edmunds sees the potential for price hikes and model shortages. In the longer term, pricing for Japanese-built cars could be affected for many reasons, Edmunds chief economist Lacey Plache says that increased production costs and the possibility that Japanese automakers may have a diminished ability to offer incentives due to costs of reconstruction in Japan. Edmunds CEO Jeremy Anwyl cautioned that over the next weeks, and possibly months, it may be harder to find exactly the model with options you want.

So, what to do if you had your eye on a Honda, Toyota or other Japanese-made vehicle? Our advice to consumers, Anwyl said is that if you had any notion about buying a vehicle in the next few months, there is no downside to buying now, though plenty of possible upside. In other words, experts think it could be a good idea to scurry over to a dealership while the pre-disaster incentives are still in place.

One caution from the analysts is that dealers might try to take advantage of the triple tragedy in Japan, using it as an excuse to charge higher prices. One final hidden ripple effect, Japanese companies produce parts for many non-Japanese vehicles. For example, the Chevy Volt contains a Japanese-made transmission and BMW uses Japanese semiconductors.

People buy Japanese cars because they are such good value for money as well as being reliable, but if prices skyrocket people will stop buying them. Would that be fair? Japanese goods will become expensive to buy in Asia if the Yen climbs against the Rupee or for that matter US Dollar. If the Yen falls, then it will become much cheaper and Japanese cars and electronic goods will then be competitive again. What is puzzling is why the Yen is so high; it has actually increased in value since the earthquake.

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