The Japanese car industry is at a standstill. Some five days after the earthquake and tsunami hit Japan, all the factories of the country's biggest car manufacturers Toyota, Nissan and Honda were still closed, including those which were not directly affected. Toyota, the world's top automobile manufacturer, estimates a production decline of 40 000 vehicles. Honda has announced that it does not plan to restart production before Sunday, and puts its production loss at some 16,000 vehicles.

According to a study by investment bank Goldman Sachs, cited by Bloomberg, financial losses could top two billion yen ($24.6 million) for every day of lost production at Nissan and Honda. For Toyota, the bill could be three times higher.

The factories could start-up again in the coming days, but probably not for long. Even if some of the factories have not been damaged, their supply has been disrupted. Nissan CEO Carlos Ghosn said earlier this week that even if operations resumed soon, "it would not be for very long because the supplier network "is really devastated".

The problem has been exacerbated by the unique Japanese system of Kanban (literally meaning "label") employed by the nation's car industry. A supply concept invented by Toyota at the end of the 1950s, the system uses the rate of demand to control the rate of production. The method allows manufacturers to limit their stock volumes and thus reduce costs. "Japanese automakers are faced with a three-fold challenge", says Yann Lacroix, an industry expert for top French insurance company Euler Hermès. "They have to resume production is spite of rolling power blackouts; obtain the necessary components from their suppliers in spite of devastated roads; and somehow export their cars abroad at time when the ports on the eastern coast are closed."

These problems will soon have repercussions abroad. Japan is the world's second-largest car exporter (after Germany). More than one in every ten cars produced in the world comes from Japan. In 2010, the export market (including cars and parts) was worth 130 billion dollars.. More than eight million vehicles were built on the archipelago, half of which were sent to the United States.

"Toyota produces 47 percent of its cars in Japan, about four million units, and out of that we export close to half of them (1.8 million)", says Philippe Boursereau, Toyota spokesperson in Europe. Supply of Toyota's hybrid Prius, of its four-wheeled Rav 4 or the small IQ – all made exclusively in Japan - is likely to be seriously affected by the disruption in the company's parts supply chain.

"We haven't been able to contact all our suppliers yet, so we do not know what shape they are in", Boursereau says. According to the carmaker, 60 percent of the cars sold in Europe are manufactured in Japan, but "it takes about six weeks for Toyota vehicles to travel from Japan to Europe." This means that over the next five weeks, European dealers will still be receiving cars (or car parts) manufactured before the earthquake and the tsunami. Any disruptions in European or American plants would only begin to occur by the middle of April.

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