Auto Industry Heads For Crisis

Back in November 2008, US automakers were a hot topic in investment terms, with fear-driven speculation that failure of any of the so-called ‘Big Three’ automakers – General Motors, Ford and Chrysler – would be devastating to the US job market. By the end of 2008, a glimmer of hope in the form of government bail-outs, offered some relief to workers fearing job losses, and investors breathed a collective sigh of relief. By February 2009, GM and Chrysler were given the task of submitting plans to authorities on how they would utilize government assistance to recover. Ford declined government aid at that time. Drastic cost-cutting, job losses and other measures helped put the Big Three on the road to recovery.

The US auto industry is once again a cause for concern, but this time due to component supply problems from Japan as a result of the devastating disasters that continue to plague that nation. Analysts agree that the true impact of the automotive components shortage will become evident in the US auto industry in April and early May, very likely resulting in job losses, or at the very least cut-backs in hours worked. And it’s not just the Japanese manufacturers such as Toyota and Honda that are affected, the entire auto industry uses some components made in Japan.

Honda has made it known that it will be slowing down production, with workers given the options of taking unpaid time off, taking paid leave or working on the scaled-down production where they may undergo training or carry out equipment maintenance. In Japan, Honda’s plants have been offline since the earthquake on March 11.

Finding alternative suppliers, especially at such short notice, is reportedly not an option. Many of the components sourced from Japan are highly specialized with electronics and computer chips being used more and more extensively as technology advances. Some analysts have been criticized as being overly pessimistic by predicting that non-Japanese manufacturers around the world will be forced to cut back on production by as much as thirty percent by mid-May. However, as noted in a recent report by Morgan Stanley “Even a missing $5 part can stop an assembly line.”