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Beginning of a Painful Slide? Toyota Will Shut Down U.S. Plants for Five Days

No one was really surprised when Toyota (TM) announced last Friday that it will suspend production at its North American plants for a total of five days this month. A confusing previous announcement had already tipped off the carmaker's troubles with its parts supply, due to the disruptions from the Japanese earthquake. The big question now is: Will Toyota have to endure additional U.S. shutdowns as the year wears on?

That depends on whether Japan can really recover quickly from the quake, tsunami, and subsequent nuclear crisis. Indications now are that the situations is stabilizing but is worse than was initially expected. The supply chain crisis that's roiling the industry is still preventing critical parts from getting either to Toyota's plants in Japan or The U.S.

When will the cars run out?
Various estimates of Toyota's U.S. inventory suggest that the company won't experience any serious shortages for about a month. But that's not enough time for Toyota to restore Japanese production to 100 percent, nor solve the parts problem in the U.S.

The real problem won't be building vehicles -- it will be building enough vehicles to meet demand. If Toyota -- and for that matter its fellow Japanese carmakers -- don't have the cars and trucks available when customers are ready to buy, those customers may look elsewhere. To say that this is a golden opportunity for the Detroit Big Three -- General Motors (GM), Ford (F), and Chrysler -- is an understatement.

Not enough Toyotas may become the new normal
Analysts are now suggesting that the aftermath of the quake could be felt by Japan's auto industry for months. They will undoubtedly lose U.S. market share and may also be forced to reschedule new-vehicle introductions. There are other problems looming, as well. Toyota for example may have to engineer it way around an ongoing parts shortage, altering the assembly of existing cars and trucks to avoid an indefinite shutdown of production.

This is going to cost Toyota a lot of money. So much, in fact, that it may be necessary for the Japanese government to step in. The U.S. states where Toyota operates may also need to get involved, providing some tax breaks to enable the "transplanted" carmaker to have some breathing room.

But what's pretty clear now is that Toyota isn't going to escape this crisis any time soon.


Photo: Toyota Media
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