Quake Fallout Threatens Auto Shipments

A massive earthquake in Japan on Friday threatened to delay U.S.-bound exports of Japanese vehicles and parts, straining the supply base of the still-recovering auto industry.

All of Japan's major ports were closed after the 8.9 magnitude earthquake and related 10-meter (33 feet) high tsunami struck near the coastal city of Sendai.

"It's a very bad situation," said Dennis Virag, president of the Automotive Consulting Group. "Japan has excellent ports, but they're going to be the focus of rescue efforts. I don't know how much (non-relief shipping) is going to be going out for while," he said.

North American auto production could also be slowed if parts are delayed, Virag said.Auto manufacturing represented about 17 percent of Japan's industrial output in 2008.

Toyota Motor Corp said it had stopped production at two assembly plants and two parts factories in Japan. The smallest Toyota sold in the United States, the Yaris, is built at one of those plants near Sendai.

U.S. demand for smaller, more fuel-efficient cars is expected to rise, along with gasoline prices, in late spring and summer.

Toyota, the world's largest automaker, said earlier in March that low inventory of its Lexus luxury brand was hurting North American sales. All of the Lexus models sold in North America, with the exception of the RX sport utility vehicle, are made in Japan.

Baird analyst David Leiker told clients in a note that infrastructure damage from the quake could affect shipments.

"The situation requires watching," he wrote, adding that interrupted shipments from Japan could have a ripple effect around the world.

Toyota's U.S.-based spokeswoman Mira Sleilati said the Japanese plant that makes Toyota's Prius, which dominates sales of hybrid cars, was still operating.

Toyota's Tohoku parts factory was closed, and production was suspended at a plant run jointly by Toyota and Panasonic Corp that produces batteries for hybrid vehicles.

Toyota's Hokkaido plant, which makes transmissions and aluminum wheels, was also closed.

HANKERING FOR FUEL EFFICIENCYNorth American auto sales tend to increase in the spring and summer, at the same time gasoline prices start inching up in anticipation of summer driving. But in the past two weeks the average price of a gallon of gasoline in the United States rose 40 cents to nearly $3.55 as tensions spread in the Middle East along with concerns about oil supply.

Higher prices can drive consumers to buy more fuel efficient vehicles, which manufacturers have played to in the past. In 2008, for example, the last time U.S. gasoline prices reached current levels, Toyota took advantage of truck-heavy lineups of U.S. automakers and sold more fuel-efficient models.

Honda Motor Co Ltd's, which according to the U.S. Environmental Protection Agency, has the most fuel efficient lineup of the major automakers in the United States, is less exposed to the earthquake than Toyota.

Honda spokesman Ed Miller said this was because 91 percent of Honda's cars and trucks sold in North America are made locally, including the best-selling Accord and Civic sedans. But, Honda's subcompact Fit is imported from Japan.

Miller said Honda's Suzuka assembly plant was closed for only a short time on Friday but its Sayama auto assembly plant would be closed through Monday. Both plants are near Tokyo, which is 300 km (180 miles) southwest of Sendai.

The Suzuka factory makes the Accord and a version of the Odyssey, neither of which is shipped to North America.

At Honda's research and development center in Tochigi, one man was killed and 30 workers were injured in the earthquake. A Honda parts plant there that makes crankshafts and other transmission parts was closed after the quake.

Nissan Motor Co halted production at all four of its Japanese assembly plants.

Operations at the five assembly and parts plants for Subaru vehicles were halted, according to Fuji Heavy Industries Ltd , which owns the Subaru brand.

SHARES REACTToyota's U.S.-traded shares closed down 2.1 percent on Friday at $85.65. Some investors used options to hedge against the risk of a long disruption for Toyota.

Put options in Toyota outpaced calls by a factor of nearly 2-to-1 on Friday as traders locked-in contracts.

Implied volatility, a barometer of investor anxiety, also rose for Toyota options, making them more expensive.

"This suggests some nervousness about the infrastructure in Japan and how quickly it can be restored," said Jon Najarian, a co-founder of stock and options website optionMonster.com.

Investors often turn to equity puts, which give the right to sell the stock at a fixed price any time until expiration, to protect an existing stock position. A call grants the right to buy the stock at a preset price up to a certain date.

Honda's American Depositary Shares closed down 2.4 percent at $39.74 on Friday.

Standard and Poor's said in a report on Friday that it believed the impact on Toyota's exports would be short term, and it maintained a "hold" opinion on Toyota's U.S. shares.

The rating agency said Toyota could be affected by potentially less Japanese spending on autos, and a stronger yen that could hurt exports and profits.

The yen soared against the dollar on Friday.