Natural Disaster: Auto industry feeling the effects and the future uncertain

The Japan tsunami happened over a month ago and the effects are still eminent.

The auto industry is now beginning to feel the pain of the production slowdown due to the shutdown of their Japanese plants. Though production has resumed at most facilities they are still at half capacity. The biggest issues automakers face are parts and inventory shortages.

Toyota plants were one of the worst hit and according to the Associated Press, Toyota plants will still be running at half capacity until April 27th and remains unclear when they will return to full production. Honda’s plant in Britain has been running at 50% of planned production since April 11th due to shortage of parts supplied by Japan. Globally, auto manufacturers rely on Japan suppliers for electronic components – integrated circuits, sensors, semiconductors, and the like – and powertrain components, including gears, clutch packs, solenoids and specialty materials. Due to the struggles, Toyota has announced a shift in their U.S. sales goals in anticipation of slowdown from the supply limitations and a slow on the output on vehicles that is anticipated to linger through July.

How is this affecting the advertising industry? Media vendors are already beginning to see cancellations from the national, regional and local dealer levels. Cancellations are primarily from import brands for the month of May as dealers are struggling with an inventory crunch. As sales goals are scaled back, advertising budgets are following suit. Effects are predicted to be temporary, General Motors CEO, Daniel Akerson was quoted in the Wall Street Journal as predicting: “I don’t see anything here on the horizon that would materially affect the year,” Mr. Akerson said. “It may affect a month or two.” Only time will tell if the import brands will take longer to recover.

Advertising messaging is shifting to promote more fuel-efficient vehicles in the wake of the gas price increase, as well as a heavier focus on used versus new vehicle advertising. Toyota nationally has not cut budget but is reportedly shifting their message by reducing their Toyotathon incentive spots. Timing for the advertising industry is not ideal, as the networks are getting ready to unveil 3rd and 4th quarter programming at the upfronts. Analysts still predict this year’s upfront will be one of the most profitable.  As reported in Adweek  Barclays Capital’s Anthony Diclemente reported, “With supply chain issues likely to persist into fall of this year, automakers will need to conserve their vehicle inventory and will temporarily pull back on ad spend,” but stopped short of predicting a decline in auto dollars in the upfront.  “There’s some caution in the marketplace, especially with respect to auto,” said RBC Capital Markets analyst David Bank. “But at this point there is nothing visible that would indicate any sort of slowdown.”

The outlook is questionable moving into the crucial spring buying season and somewhat deflating coming off of a strong March when U.S. auto sales indicated a continuing recovery. Edmunds reported a rise in March sales of about 17 percent from a year earlier and also surging ahead by 25 percent from February.

All eyes are on April, which is typically not a strong month due to tax season; however this month will now be an indicator of how much the tsunami has really affected results and if more adjustments to the spring marketing strategies will be necessary.

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