Financial impact on Japan’s industries

Without knowing the full extent of the disaster that hit Japan, public sector bean counters need to address “cause and effect” spread sheets as they prepare their FYE budgets this summer. One of the efficiency measures taken by industry in Japan is implementation of “JIT” programs. “Just-in-time” is where your parts suppliers are virtually next door as you keep inventories to a minimum. This is a great concept except, when a disaster strikes. In this case it was three fold with a Tsunami, earthquake and 4 nuclear power plants failing within the same week.

Without further research I’m told that domestic manufacturing plants inventory of parts to build Japanese cars in the USA may run out tomorrow. That said we do not know how much inventory of parts is currently in the pipeline. So as we struggle with our budgets, and cities have become so dependent on taxes from auto sales, I would urge city council members to cut back on their expectations until we have a full picture of the magnitude of the work stoppage.  Think about it for a moment. Yes, dealers have new car inventory on their lots but how long will that last? And what about spare parts if your car needs to be serviced? The same shortages may apply.In Mission Viejo we have 3 successful Japanese vehicle dealerships. Acura, Infiniti and Lexus. As reported in the Wall Street Journal “Carmakers are going to keep assembly plants closed until they are certain that the supply chain has recovered enough to meet the demands of regular production, and that could take a while.

The situation may be bleaker for suppliers, reported the WSJ. North American car production could be slowed if parts are delayed.

Baird analyst David Leiker said infrastructure damage from the quake could affect shipments. The smallest Toyota sold in the United States, the Yaris, is built at a plant near Sendai.

“The situation requires watching,” he wrote in a client memo, adding that interrupted shipments from Japan could have a ripple effect around the world.

Mr Dennis Virag, president of the Automotive Consulting Group, a consulting group assisting manufacturing companies with growth, said: “It is a very bad situation.”

He added: “Japan has excellent ports, but they are going to be the focus of rescue efforts. I don’t know how much (non-relief shipping) is going to be going out for a while.”

We have only addressed one high ticket product. How will this disaster impact the big box stores remains to be seen.

About Larry Gilbert