The Great Toyota Guessing Game

How badly has the Japan disaster really hurt the automotive giant?

John Rosevear
John Rosevear
Apr 8, 2011 at 12:00AM

Was it one of those "gaffes" where the speaker erred by telling the truth? Toyota (NYSE: TM) spokesman Mike Goss was quoted in a flurry of news reports on Monday saying that a temporary shutdown of all of Toyota's U.S. factories was "inevitable" due to parts shortages resulting from the Japanese crisis.

Toyota HQ quickly responded with a short, tart statement saying that it was still "too early" to tell if shutdowns were going to be necessary or at which exact locations they might occur, but the damage was done:  Toyota's shares dropped sharply, and stayed down through Thursday.

While the stock's price picked up a bit on Friday after the company announced that it would be temporarily re-opening all of its Japanese plants on a limited basis, it's still hard to do more than guess at how bad things are likely to get for Toyota.

But the episode earlier this week was an ominous hint.

Toyota's in trouble. But how much?
The problem, in a nutshell, is this: The large, ongoing disruption in electric power supplies caused by the Japanese earthquake and tsunami has wrought havoc on supply chains in several different industries. It's not just the automakers -- reports on Tuesday suggested that Apple could be facing a shortage of iPad batteries as a result of the quake, and Japanese firms ranging from tiny parts makers to giant Sony (NYSE: SNE) are struggling to resume production -- but the industry's unique just-in-time supply structure means that car manufacturers have been especially hard hit.

And Toyota may well be the hardest-hit of all. But so far it's hard to tell: As I said last week, there are good reasons for the automakers to be coy about the problems they anticipate, and it may be a few weeks before the extent of the issues become clear. But as of Friday morning, here's what we do know:

  • Japan restarting -- sort of. Toyota has 18 factories in Japan making cars and components. As of right now, only a couple of those factories are open, and those are running at less than full capacity. All of the rest will re-open on April 18 -- but they'll only be running at 50% capacity, and only until April 27.  What happens then? Toyota hasn't said.
  • North America running -- for now. Toyota's 13 North American factories are all open as of right now, though overtime production has been eliminated to conserve parts.
  • Parts still scarce. The company said on Friday that it is still struggling to obtain key types of parts.  However, the situation improved markedly over the figure initially estimated.
  • Some cars hard to get. Gas prices are up. Want a Prius? Good luck getting one: Although the Japanese plant that makes the popular hybrid was among the first to start running after the disaster, supplies of the car are very short. And they may remain short for a while, at least here: The supplier factory that makes the batteries used in the U.S. version of the car is among the damaged plants.

Of course, Toyota's not alone.

The effects are still spreading
(NYSE: HMC) and Nissan (OTC: NSANY.PK) are both running at about half capacity in Japan, and Honda's president said on Friday that it may be "a few months" before production is back up to speed. Honda's 8 North American plants are running at reduced capacity as well, and U.S. dealers have been told not to order Japan-built models, including the popular Fit.

So is this an opportunity for investors to grab shares of Honda or Toyota? The lack of clarity makes me hesitate to say yes, at least for the moment. Normally, nearly all Japanese firms report their annual results and give forecasts for the coming year in late April. But this year, many (including Toyota and Honda) are expected to delay reporting (and forecasting) because of the disaster. If you're thinking about buying, I'd suggest watching both carefully -- but holding off for a few weeks at least, until the extent of the problems are a little more clear.

But this might be a time to look at competitors who stand to gain ground. For the first time in ages (maybe ever), General Motors (NYSE: GM) and Ford (NYSE: F) both have very good, up-to-date small cars in their lineups. Global shortages of the Japanese mainstays could work out especially well for Detroit at a moment when gas prices are rising. GM in particular has been a bit overlooked by the market in recent weeks, and while the General's recovery still has a long way to go, its chances of regaining the global sales crown from Toyota are looking pretty good right now.