In the wake of Japan's 9.0-magnitude earthquake, subsequent tsunami and ensuing nuclear crisis, the country's economic losses have soared to more than 300 billion dollars. The immediate economic impact, of what is being considered Japan's worst natural disaster in nearly a hundred years, is being felt across Asia and in the global auto industry which hugely depends on Japan for key parts' supply. Auto sales in Japan have hit the brakes sharply since the disaster on 11th March.
More than 1,000 production plants have been negatively affected and shut down temporarily. Very few have resumed production but are unable to reach previous efficiency levels due to extreme power shortages, unavailability of raw materials/components, damages to facilities, etc.
A number of Japanese automakers have partially started production primarily for international markets; however they are facing challenges in resuming production at pre earthquake efficiency level. On the local front, things are uncertain in Pakistan's auto industry as most of the domestic assemblers and vendors, like those in other parts of the world, rely on imports of specialised auto parts/components, developed through patented processes, sourced from Japan.
Disruptions to supplies appear inevitable in Japanese exports in the upcoming months. Despite the inventory of completely knocked down (CKD) kits, car assemblers will start facing a parts' crunch if supply is not restored. This will significantly impact the supply chain - unless alternative sources outside Japan are tapped - resulting in delayed deliveries of vehicles to customers.
Furthermore, the Japanese Yen is also appreciating to record high levels - in anticipation of huge amounts required for reconstruction activities - adding cost pressure on international and local suppliers. If this trend continues, the cost of doing business will increase for both local vendors and Original Equipment Manufacturers, resulting in price increases of automobiles.
Consequently, a price revision by automakers is expected in coming months, which will also be determined by rising oil prices. The recent turmoil in Arab states has already led to an increase in input costs (such as polypropylene), as oil and oil derivatives cost have gone up by around 25 percent in the last 6 months. Oil prices are likely to head even higher with increased unrest in the Middle East and start of reconstruction activities in Japan.
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