Toyota Tells U.S. Dealers to Brace for Tighter Auto Supply

Toyota Motor Corp. (7203) told U.S. dealers that assembly disruptions triggered by last month’s record earthquake and tsunami in Japan may thin supplies of vehicles into the third quarter.

The world’s largest automaker will build vehicles at “significantly reduced levels,” Bob Carter, group vice president of U.S. sales, said in a memorandum to dealers. While Toyota, Honda Motor Co. and Nissan Motor Co. reported mostly minor damage at Japanese plants from the March 11 disaster, all three cut output in Japan and abroad as they rebuild stockpiles of parts from suppliers whose operations were disrupted.

Toyota, which estimates that North America generates about 60 percent of its operating profit, said last week it would suspend production at auto, engine and parts plants in the region for five days this month because of a shortage of Japan- made components. The company plans to restart all plants in Japan by April 18 at half of their capacity, it said last week.

“What we don’t know are vehicle production levels for May through July,” Carter said in the memo. “The potential exists that supply of new vehicles could be significantly impacted this summer.”

Toyota probably has a sufficient supply of vehicles until the middle of May, said Jesse Toprak, an industry analyst at TrueCar.com, a website based in Santa Monica, California, that tracks auto market trends.

Prius Availability

“Beyond that, cars made solely in Japan and that get exceptionally high mileage -- the Prius, for example -- will have very limited availability,” Toprak said.

The company said today production at five European plants will stop for several days late this month and in early May because of parts shortages.

Ford Motor Co. (F) may also halt production of some models in Asia starting in the last week of April, because of parts shortages caused by last month’s 9-magnitude earthquake, the company said in a regulatory filing yesterday. The second- largest U.S. automaker closed a factory in Kentucky and Belgium last week due to earthquake-related parts shortages.

The possible shutdown of Asian plants wouldn’t have a “material impact” on overall results, Dearborn, Michigan-based Ford said in the filing.

Toyota’s American depositary receipts, equal to two ordinary shares, rose 70 cents to $77.20 at 4:15 p.m. in New York Stock Exchange composite trading. Ford rose 5 cents to $14.91.

Resuming Output

Toyota may lose production of 35,000 cars and light trucks at North American factories between March 11 and April 25 because of production cutbacks, Shiori Hashimoto, a company spokeswoman in Tokyo, said yesterday. Mike Goss, a spokesman for Toyota’s manufacturing unit in Erlanger, Kentucky, declined to elaborate on assembly plans beyond the April 8 announcement.

“Output reduction in Japan and overseas will most likely continue until September,” said Kohei Takahashi, an analyst at JPMorgan Chase & Co. (JPM) in Tokyo. “Demand in the overseas markets is greater than that in the domestic market, so automakers will prioritize resuming output at their overseas plants.”

A decision on whether North American production cuts need to be extended will be made later this month, Carter said, without elaborating.

Following the temporary shutdowns in Europe, output at plants there will be reduced for the rest of May, Toyota said in an e-mailed statement today. Auto-assembly plants affected are in Burnaston, England; Adapazari, Turkey; and Onnaing, France, according to the statement. Engine plants in Jelcz-Laskowice, Poland; and Deeside, Wales, will also be shut.

Paint Colors

The company said it will continue to evaluate its supply chain and make plans about production beyond May.

Toyota has inventory of more than 300,000 new vehicles for sale in the U.S., more than after the U.S. government’s “cash for clunkers” incentive program in 2009, Carter said in the memo.

“We remain confident about April sales,” he said.

Along with reduced vehicle inventory, Toyota also expects some paint colors to be in limited supply because of damage sustained by a chemical maker in Japan, Carter said.

Toyota’s distribution department will work with the North American engineering and production unit “to change exterior colors on affected vehicles to match paint supply and keep the production lines moving,” Carter said, without elaborating.

Citigroup Inc. analyst Noriyuki Matsushima downgraded Japan’s automobile sector to “sell” last week, citing the possibility that output cuts will last beyond April. The report also said the industry hasn’t addressed the effect on earnings from possible electricity shortages stemming from damage to a nuclear-power plant in Fukushima, Japan.

Toyota’s U.S. sales unit is based in Torrance, California. The company’s memo to dealers was reported earlier by the Wall Street Journal.

To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.