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World events that shake a country often send rippling effects through economies around the world. The unexpected war in Libya and earthquake in Japan are both having a negative effect on automakers around the world.
Libya is a major producer and provider of the world’s oil with its reservoirs in the eastern portion of the country. The conflict that erupted between rebel and government forces essentially shut down much of their oil production. Prices of oil have risen as a direct consequence.
One in five microprocessors is made in Japan. That is not great news when considering the vast number of places a microprocessor is used in today’s automobile. GPS, diagnostic computer, fuel mix, and more; all make use of microprocessors. Analysts cite concerns over the effect of the hit in production of small plastic and rubber parts. Some manufacturers are reporting discontinuation of certain paint pigments that are now in tumultuous supply.
The infrastructure of Japan took such a sharp hit, that even now it is difficult for production to get back on track. Aftershocks and power losses make it impossible to resume normal production activity.
United States auto manufacturers have all put together emergency teams to figure out alternate ways to navigate this difficult time. Many are trying to avoid plant closures by taking the first step of cutting back scheduled overtime. Some manufacturers have already been forced to close plants. This comes at a time when the auto industry was beginning to make a rebound.
The effect these circumstances will have will be varied. Automakers are expected to start running out of their surplus inventories within 8 weeks. Many have begun to shift production to vehicles that do not require a lot of electronic subcomponents. Vehicles with higher profit margins are being given priority for available parts. The automobiles that do will see rising prices in the long run as demand tightens for sought after parts.
Weathering the storms of the world economy is something the automaker industry has done several times. The recent events in Japan and Libya really set the bar high for manufacturers while trying to handle the effects of these disasters. Even now they are working to find alternate suppliers and solutions to these problems.
Regardless of how one looks at any of this situation, a common economic principal will come into play. Less supply means higher demand and higher prices. If you are considering buying an automobile, prices are going to be increasing as the world feels the effects of these events and mourns the tragic losses.
