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Japan crisis threatens auto industry turnaround

Honda's Alliston, Ont., engine plant

Deborah Baic/Deborah Baic/The Globe and Mail

Shortages of critical Japanese-made components would shrink global automobile production by up to 40 per cent if idled plants in the country's ravaged northeast fail to restart production by early May.

U.S.-based IHS Automotive outlined that worst-case scenario on Thursday, warning that a drop in output of up to 100,000 vehicles per day was possible if major supply disruptions out of Japan persist for up to eight weeks after the March 11 earthquake.

Michael Robinet, vice-president of global vehicle forecasts, estimates the industry's daily production at roughly 280,000 to 310,000 vehicles.

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The highly integrated nature of the global auto industry means the North American plants, including those in Canada, would be affected if key Japanese-made parts become scarce.

The timing couldn't be worse - especially for U.S. auto giants General Motors Co. and Chrysler Group LLC - which have recently turned the page on costly taxpayer bailouts.

"If you take 30 or 40 per cent of the global automotive industry down, North America is going to be part of that … Canada is not immune to this," Mr. Robinet said.

The potential impact in Canada would be felt beyond Toyota Canada Inc. and Honda Canada Inc. - both of which have two assembly plants here - because U.S. auto makers also use Japanese parts.

That means Ford Motor Co. of Canada Ltd., Chrysler Canada Inc. and General Motors of Canada Ltd. could eventually see production suffer by the Japanese crisis, Mr. Robinet said.

The last thing any of the three auto makers need is even a minor crisis, said Canadian Auto Workers president Ken Lewenza, noting GM and Chrysler, in particular, are just pulling out of a crisis.

"The timing is terrible," he said. "They are turning around the companies. They are doing incredibly well and we don't need anything to stop that momentum."

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The specialized parts in question include electronic and specific powertrain components, suggesting Japan continues to play a critical role in North American production even if it only supplies a fraction of the parts.

"The industry needs to be prepared for a fairly widespread part-and-vehicle shortage here in Canada, across North America as well," said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates. "I think the extent of that, because things are so fluid right now, are just unknown."

In February, North American production was 1.06 million units, marking a 15-per-cent increase from last year. Mr. Schuster's 2011 production forecast remains at 12.9 million units, as lost volume will likely be made up this year.

Still, output is already being impacted by parts shortages caused by the Japanese crisis. Earlier this week, Honda cancelled overtime shifts at assembly plants in Alliston, Ont., and Alabama.

Toyota Motor Corp. has warned it expects to halt production at some of its North American factories, but doesn't know when or for how long. That may include a pickup truck assembly plant in Texas. Last week, it cancelled overtime at all its North American plants.

GM, meanwhile, has idled its plant in Shreveport, La.

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Chrysler Canada said it has trimmed hours for some shifts this week at its Windsor, Ont., plant due to a parts shortage from an external supplier but stressed it was unrelated to the Japanese crisis.

In Japan, Toyota plans to resume production of the Prius and two Lexus hybrids on March 28.

Rival Honda said Thursday that the suspension of car production at its Saitama and Suzuka factories will be extended to April 3.

With files from Associated Press and Reuters

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