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Japanese-Brand Inventory Levels Worry California Auto Dealers

U.S. dealers are expressing concerns and uncertainty about shrinking inventories. Nowhere are those concerns greater than in California.

LOS ANGELES – Japanese-brand dealers had thought cars would be flying off their lots this year. Now they are wondering if they will get enough vehicles to sell.

That’s because the major earthquake in Japan has, among other things, damaged the auto industry there. Auto and supplier plants temporarily have shut down. A series of region-wide power disruptions and other logistical obstacles have hampered production restarts.

Goldman Sachs estimates the shutdowns are costing the auto makers more than $150 million a day, according to the Associated Press.

The broken-supply chain is affecting some Japanese-brand plants in the U.S. The situation even is causing General Motors, which buys many of its parts from Japanese manufacturers, to stop the assembly line at its pickup plant in Shreveport, LA.

U.S. dealers are expressing concerns and uncertainty about shrinking inventories. Nowhere are those concerns greater than in California, where popular Japanese brands are market-share leaders.

“We don’t really know what effect all this will have on our market,” says Bob Baker, whose San-Diego based Bob Baker Auto Group includes Toyota, Lexus and Subaru franchises.

“Right now, it is difficult to ascertain what exactly is happening in Japan,” he says. “It’s still a little too early. We’re not getting much detail.”

So far, business is “normal,” he says. “We have about a 75-day supply, with additional vehicles in the pipeline.” Parts inventory remains well-stocked. And customers aren’t “screaming” for more vehicles. Yet.

The same goes for Richard Romero, general manager of Toyota of Glendora, about 30 miles (48 km) northeast of Los Angeles. The store has a healthy 60-day supply of new vehicles, he says.

Romero and Baker are among the lucky ones, because many Japanese-brand auto dealers throughout the state have inventories of 30 days or less.

Fuel-efficient Japanese cars have sold well as recent gas price hikes surpassed $4 a gallon in Los Angeles and other urban markets, says Peter Welch, president of the 1,200-member California New Car Dealers Assn.

Data from the dealers association show as statewide gas prices began climbing at the end of 2010, there was a notable increase in new registrations of Japanese models, as well as smaller, more fuel-efficient vehicles in general.

The state likely will prove especially vulnerable to the disruptions in Japan because international brands account for 70% of the California’s auto market, with Toyota’s 23% of market share leading the pack.

The Honda Civic and Accord were California’s best-selling models in 2010, while Japanese auto makers sold 574,941 units overall, a 10% jump from the 523,265 delivered the previous year.

Analysts had predicted Japanese-brand sales would see another jump of more than 10% this year. But the production shutdowns may alter that optimistic projection.

Welch suggests the market’s adoption of “just-in-time” inventory systems has indeed helped auto companies streamline delivery and storage costs.

But on the downside, that approach also sets up California, as well as the U.S. auto industry as a whole, to take big hits from disruptive calamities such as the Japan 9.0 earthquake on March 11.

“This is due to the overall globalization of the industry, the cross-pollinization of company ownership” and the ongoing trend towards sharing platforms between models, Welch says. “It’s not looking pretty.”

Andy Coyle, general manager at Honda of Downtown Los Angeles, agrees it will be “difficult” for dealers to weather inventory shortages when demand is expected to be high.

He suspects dealers won’t want to participate in so-called dealer trades, in which dealers sell vehicles to each other depending on customer demands.

“I doubt dealers in this market will be willing to give up cars,” says Coyle.

Ultimately, it’s not a question of if but when Japan’s production stoppages hurt California, says David Wilson, owner and president of Orange County-based Wilson Automotive Group, a collection of 16 dealerships that include Toyota, Scion, Lexus, Honda, Acura and Mazda.

Wilson, who also sits on the regulatory California New Motor Vehicle Board, notes his operation recently sold 85 Toyota Priuses and now is down to a single day’s supply of the popular hybrid vehicle.

“It’s not as bad as the public flogging” Toyota dealers suffered during the company’s high-profile recalls that began in 2009, he says. But “this is going to drop our production star lower.”

Japanese auto makers won’t be able to “just close down their production” and then restore everything to normal, says Wilson, noting it’s not that easy.

There are those supply-chain issues, too, with many Japanese parts providers reeling from the disaster, he says. “We’re going to be down 30-60 days’ worth of inventory. We can’t make that up.”

On so many levels, “these are unfortunate circumstances that nobody needed.”

TAGS: Dealers Retail
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