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Toyota Motor Corp. (TM-N) is warning it will probably shut down its North American assembly plants later this month amid a shortage of parts from Japan, as the economic aftershocks of the crisis gripping that country threaten to disrupt the North American recovery.
While it's unclear how long the closings could last, North America's economy can ill afford another hit to manufacturing at this point in the economic recovery. Vehicle production has helped lead the way in the rebound as auto sales bounce back solidly from the depths of the recession.
Honda Motor Co. Ltd. has already slashed output by half at its North American plants, while Nissan Motor Co. Ltd. will shut all its U.S. and Mexican plants for at least one week in April. Ford Motor Co., too, has halted production at a truck plant in Kentucky this week.
The troubles go well beyond the assembly operations.
Toyota does not lay off employees during shutdowns, but halting assembly lines will affect about 500 suppliers throughout North America and they are likely to stop producing components as well, potentially dealing the continent an economic shock as Canada and the United States struggle to maintain the recovery from the 2008-2009 recession.
The timing is not certain and it’s not clear if the shutdown will be staged at plants in Ontario, Kentucky, Indiana, Texas and Mexico, whether all plants will close at once and for how long they will be unable to produce vehicles, spokesman Mike Goss said Monday.
The impact of the crisis on availability of cars and trucks will start to show up in the second and third quarters, said Mike Jackson, chief executive officer of AutoNation Inc., the largest U.S. car dealership group.
“Based on the current information from the manufacturers, we expect production disruptions will significantly impact product availability from Japanese auto manufacturers in the second and third quarters of 2011,” Jackson said in a statement Monday.
He was quoted in an Associated Press interview as saying shortages will last from two to four months and shipments of some models could be slashed by between 30 percent and 50 percent.
As of a week ago, auto makers in Japan had cut production by 400,000 vehicles since the March 11 earthquake, Bank of Nova Scotia economist Carlos Gomes said in his monthly industry analysis.
Japan is the second-largest auto parts producing nation, Mr. Gomes noted. Germany is the largest.
Toyota’s plant in Cambridge, Ont., cranks out Corolla, Matrix and Lexus RX350 models, while its factory in Woodstock, Ont., produces the RAV4 crossover utility vehicle.
The production cuts and potential vehicle shortages could damage the Japan-based companies because they arrive just as the price of gasoline soars and U.S. drivers switch to passenger cars, which are dominated by Japanese auto makers.
Sales of the Cambridge-produced Corolla, for example, rose 2 percent in the U.S. market last month, while sales of the fuel-sipping Prius hybrid sedan soared 58 percent.
The price of West Texas Intermediate crude oil rose 53 cents US Monday to more than $108 US a barrel. Gasoline prices rose 15 cents last week to an average of $3.75 a gallon in Michigan, the American Automobile Association said.
Toyota is running short of multiple parts, mainly electronics and paint pigments, said Yoshimi Inaba, chief operating officer for North American operations. The company, he said, is looking for alternate parts suppliers.
The vast majority of the 30,000 parts in the average North American vehicle are made in North America, but some are produced only in Japan, which means auto makers are scrambling to find alternate sources.