The earthquake and resulting tsunami that wreaked havoc in Japan on Friday and over the weekend is now seriously threatening exports from the country. Japan's elite auto manufacturers such as Honda
Auto assembly plants in Japan are slated to remain closed until at least Sunday as the calamity has affected operations and thrown production schedules off track -- but those estimates could always be extended. Frequent blackouts and widespread damage to roads and ports are only adding to automakers' woes.
The earthquake has dealt a terrible blow to Japan's economy, the fourth-largest in the world, with some reports suggesting that repair costs would run tens of billions of dollars. For the past two decades, Japan's economy has been struggling and has just begun to show signs of recovery from a long deflationary period.
The impending crisis
Undoubtedly, the crisis is the biggest that Japan has had to face since World War II, with unconfirmed reports suggesting the death toll could top 10,000. The Nikkei 225-stock average in Tokyo plunged 6.2% on Monday and is down an additional 13% as I write.
The world's largest automobile producer, Toyota, has suspended production at all of its manufacturing plants across Japan. The company's stock dropped 8.6%, while Honda's fell 7.7%. Shares in Nissan fell 10.7%.
The automobile sector is one of largest revenue earners for Japan, which is a major hub for car production and a large supplier of parts. With a large network of ports and roads being hit hard, exports and imports will be majorly affected.
Effects in the U.S.
A Honda spokeswoman said that even if they do manage to get their products manufactured, there is no way for them to ship them out. Toyota, Honda, and Nissan -- Japan's three largest auto producers -- have plants in the U.S. While many of their car models are manufactured in North America, others such as the Lexus and fuel-efficient hybrid cars like the Toyota Prius and the Honda Fit are produced solely in Japan.
This crisis couldn't have come at a worse time, as hybrid cars in the U.S. are at a premium following the jump in gas prices. The disaster also catches Toyota at a bad point. Two years ago, the company was forced to recall close to 14 million cars because of an issue related to carpet and floor mats and has yet to fully recover from the huge losses incurred at the time.
Friday's tsunami destroyed nearly 1,300 Nissan cars at the Hitachi Port and close to a 1,000 cars at the center at Miyagi. With ports being damaged extensively, exports out of Japan will fall drastically. Last year, Japan exported nearly 200,000 vehicles to North America. It's more than likely that all these losses are insured, but it will significantly affect the company's ability to meet latent consumer demand, regardless. This is a big blow to the industry.
As consumers look to reduce financial pressure caused by the rise in oil prices and consider buying more fuel-efficient cars, Japan's crisis came at a poor time. Demand is high for Toyota and Honda's hybrid cars, and if supply stagnates, revenues will be affected adversely, hurting the company's stock. Until Japan gets a grip on the current crisis, we can't exactly predict what the impact will be on those companies' stock. In the meantime, rival car manufacturers such as Ford
Shubh Datta doesn't own any shares in the companies mentioned above. General Motors is a Motley Fool Inside Value pick. Ford Motor is a Motley Fool Stock Advisor choice. The Fool owns shares of Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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