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ALG: Japan Disaster Could Lead to 10 Percent Increase in New-Vehicle Prices

April 11, 2011

SANTA BARBARA, Calif. – The recent Japan disaster could result in a nearly 10 percent jump in new-vehicle pricing for some key models, among other effects to the automotive industry, according to a new report by ALG, a subsidiary of DealerTrack Holdings Inc.

With the disaster causing suspensions in operations for a majority of Japanese vehicle production facilities, dramatic disruptions to supply chains and damage to manufacturers’ fully-assembled vehicle inventory in the region, the ALG report analyzes the impact on new-vehicle transaction prices, current new and future used vehicle supply, and residual values. The ALG analysis reveals that while a short 20-day interruption may have little or no impact, longer interruptions equating up to 100 days of vehicle production could cause an eight-to-nine percent increase in vehicle pricing on some models and a 0.2 to 0.7 percent increase in 36-month residual values as a result of changes in future used supply. 

“With the eyes of the world focused on recovery efforts in Japan, ALG is carefully measuring the impact this disaster may have on future residual values and current market pricing,” said Eric Lyman, director, Residual Value Solutions, ALG.  “Based on current available data and OEM plans, we believe there will be minimal long term impact, and a short term spike in new car pricing on some models manufactured or sourced from Japan. However, further complications and supply shortages could have a slight positive impact on residual values.”

In a recently released report that focuses on a handful of key affected models, ALG predicts that a 20-day production delay will cause new transaction prices to rise by approximately 1.5 percent on average, except for the Honda Accord. The impact to the Accord is mitigated by the fact that a large share of its production occurs in the U.S. If Japanese manufacturing  interruptions caused by plant shutdowns, supply chain shortages and energy supply issues equate to roughly 100 days of production disruption, ALG forecasts a 0.7 percent increase in 36-month residuals for the entire Entry Compact segment. This is mainly driven by a reduction in supply of vehicles currently only produced in Japan; for example, the Honda Fit and the Toyota Yaris.

For the complete ALG Japan Crisis Report, visit: http://www.alg.com/pdf/whitepaper_japan_crisis.pdf.

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