Will Americans Stop Buying Cars? Japan Impact

Americans may cut back car purchase as shipments of automobiles from Japan fall due to the earthquake and tsunami there. The effect on US car companies would seem to be positive, but it probably won’t be.

Japanese cars are immensely popular in America, despite the Toyota Motor (NYSE: TM) recalls. Toyota still has more than 14% of the US market. Honda Motor’s (NYSE: HMC) share is 10% and Nissan’s is 9%. Each of the firms build cars and light trucks at American plants, but a parts supply interruption of several months from Japan could affect production.

US car buyers are already used to keeping new cars for five years on average. That is the longest period on record.  Cars are lasting longer because their quality is better.  Another cause is the frugality which came with the recession.

American and European car companies are likely to raise prices to take advantage of the Japanese shortage. It would seem just as logical that they would offer lower prices to pick up market share. GM (NYSE: GM), Ford Motor (NYSE: F), and Chrysler are more likely to try to improve profits which are already being undermined by high gas prices. The window of a shortage of Japanese cars may be brief which means the profit opportunity may be as well.

Many American car owners are loyal to individual brands. The best example of this is the Toyota Prius. It global sales recently passed three million. The vehicle is so popular in the US that some buyers will simply wait for new supply. These consumers can afford to defer purchases as long as the cars they have now can be kept on the road. Honda’s reputation for quality, which is at the top of most research firms that cover brand perception, will also cause some buyers to defer purchases.

Quality is still an enemy of the US car companies that would like to take advantage of a shortage of Japanese cars.  Ford, which has had sharp gains in customers satisfactions surveys, may do well. The shortage is much less likely to help GM and Chrysler, which have made little progress in such measurements.

Car sales are not likely to drop backs to 2009 levels, which was a multi-decade low. Ford and some overseas based car companies which American consumers  favor will continue to sell and may not be hurt at all by the troubles at the Japanese car companies. Chrysler and GM may not be helped. Car sales in the US will fall until the Japanese vehicles buyers want are back on the market.

Douglas A. McIntyre