Dive Brief:

• Honda and Toyota are taking steps to limit production at U.S. factories as a result of multiple supply chain issues facing the automotive companies, the manufacturers confirmed in emails to Supply Chain Dive. Toyota faces a shortage of petrochemicals, and Honda said it was dealing with various supply chain constraints.
• Honda will suspend production at "most" of its U.S. plants for the week of March 22, though a spokesperson said this is subject to change. Toyota is introducing several nonproduction days or nonproduction shifts at factories in Kentucky, West Virginia and Mexico, but the exact day and shift will vary by location, a company spokesperson said.
• "We continue to manage a number of supply chain issues related to the impact from COVID-19, congestion at various ports, the microchip shortage and severe winter weather over the past several weeks," a Honda spokesperson said in an email. "Our purchasing and production teams are working to limit the impact of this situation and are adjusting production as necessary in order to carefully manage the available supply of parts and meet the needs of our customers."

Dive Insight:

Honda and Toyota rely heavily on Los Angeles as an import gateway, which is one of the most impacted when it comes to port congestion in recent months.

Port congestion issues are not expected to ease any time soon, with current forecasts showing strong volume continuing through at least the first half of 2021 and the distribution of new stimulus checks expected to increase consumer demand even further.

Similarly, the semiconductor shortage is expected to stretch into the third quarter of 2021 as foundries work to stand up manufacturing capacity.

The result of these supply chain challenges is playing out at automotive manufacturers across the country: scaled-back imports and lost sales.

"Automotive sales will drop from the previous forecast because of short supply of the semiconductors and so on," Honda Executive Vice President Seiji Kuraishi said on the company's earnings call last month.

Toyota and Honda's imports were down 72.5% YoY and 38% YoY, respectively, in February, according to Panjiva. "Both companies had already scaled back the imports of parts to their U.S. operations in February, likely reflecting the well-flagged issues with semiconductor shortages," Panjiva said in a research note Thursday.

Other automakers are also facing supply chain difficulties. General Motors announced it will have to build some of its trucks without a fuel management module because of the semiconductor shortage, and that is expected to result in lower fuel efficiency, according to Reuters.

When a large winter storm hit Texas last month, it resulted in yet another supply shock for the manufacturing industry: plastic. More than 60% of PVC production in the U.S. is offline as a result of the weather last month in Texas and Lousiana, according to data from ICIS cited by Bloomberg.

"Toyota has been informed that a shortage of petrochemicals will affect production at our Kentucky, West Virginia and Mexico plants," a Toyota spokesperson said Wednesday. "We are evaluating the supply constraint and developing countermeasures to minimize further impact to production."

Confer Plastics, a manufacturer that specializes in pool and spa products, told local news in Texas that its plastic supply could be hampered for the remainder of the year.

"The polyethylene plants that provide our material didn't get notice usually like hurricanes," Confer Plastics General Manager Cliff Hoover told WGRZ NBC 2. "They [normally] have a notice that they can shut the plants down properly."

The automotive industry is especially vulnerable to supply shocks due to its use of just-in-time manufacturing, which relies on lean inventories. But some experts don't expect this to change even given the recent disruptions.

"While companies are taking some major hits for [a] couple quarters, the decades of savings from lean inventory, outsourcing to specialist component producers, global sourcing, and sole source suppliers far surpass these short term reductions in profit," John C. Taylor, chair of the department of marketing and supply chain management at Wayne State University, said in an email, adding that lean and JIT strategies are likely to continue.

At times, near-sourcing or insourcing makes sense for auto manufacturers, but this won't always be an option, Taylor said.

Automakers "would love for components to all be built near assembly plants, however that means the supplier must have multiple plants near each customer assembly plant, and that is not going to be possible with high fixed cost facilities like semiconductor foundries," he said.

In the case of semiconductors, automakers have been highlighting efforts to communicate with suppliers in an attempt to bolster inventories.

"There were some about 10 or more telephone conferences held with the suppliers," Toyota CFO Kenta Kon said on the company's earnings call last month. "So when we had supply problems, communication was enhanced with the suppliers."