Gas Prices, Tsunami Worry U.S. Drivers

March 14, 2011— -- America's motorists may soon have a second worry to put alongside the rising price of gas.

The Department of Energy reported today that the retail price of gas has risen to an average $3.567 a gallon nationwide, up 4.7% from a week ago. The biggest increases were in California (8%) and the West Coast generally (7.4%).

Consumers, however, may also now have to contend with a reduction in the number of fuel-efficient cars imported from Japan.

The terrible human toll from last week's earthquake and tsunami still is being counted. But Japan's manufacturing sector likewise was hit hard and is still reeling. U.S. imports of everything from cars to consumer electronics to semiconductors eventually may be affected. Japan's NikkeiStock Average dropped 6.2 percent today, and the S&P 500 Index dropped 6 percent.

The biggest U.S. imports from Japan include passenger cars ($41.4 billion), automotive accessories ($8.8 billion), computer accessories ($6.7 billion) and semiconductors ($3.5 billion).

For the moment, the big Japanese car makers have plenty of inventory sitting on U.S. wharves, awaiting delivery to showrooms.

Honda spokesman Marcos Frommer says that U.S. consumers haven't been affected. "There's been no impact. We make 80 percent of the Hondas sold in the U.S. right here in North America. We anticipate consumers will continue to see plenty of cars at the dealership." He adds, however, that Honda is continuing to evaluate the longer-term situation.

The 20 percent of cars imported includes the Honda FIT, the Insight hybrid and the Civic hybrid. In Japan, he says, "All production is suspended currently—both finished vehicles and parts."

Javier Moreno, a spokesperson for Toyota says, "At this point, we have enough supply in the pipeline that the impact to North America will be minimal." About 65 percent of Toyotas are built in the U.S., the rest imported from Japan. Production in Japan, he says, will be suspended for at least three days--March 14, 15 and 16. "That's 40,000 units that will be affected, not all of which would have gone to North America." Toyota hasn't yet decided when it will resume production.

"The biggest issue for U.S. consumers," says Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, "is how quickly they can get power grid going again at its full capacity. The quake affected the northeast, not the industrial heartland of Japan. The northeast accounts for only about 4 percent of Japan's GDP."

Nationwide, he says, Japanese industry is facing a reduced supply of electricity, caused in part by the shutdown of nuclear plants damaged by quakes or water. "They get about 20 percent of their power from nuclear," he says. "Of that, about a quarter could be down for a long time. That's a pretty big hit."

Factories in the region, including ones belonging to Sony and Toyota, have chosen temporarily to suspend operations, so that the available electricity can be put to domestic household use.

In time, he says, Japan will make up its power shortfall by making use of unused generating capacity at some of its gas and oil-fried power plants. Increased use of coal, though, isn't an option: "The coal fired plans are already running close to 100 percent capacity."

The time required to ship goods to the U.S. by sea averages 15 to 20 days, so, for that much time at least, the pipeline of goods will continue to deliver at pre-disaster levels. And afterwards, says Hufbauer—if the power situation improves -- manufacturers ought to be able to make up any shortfalls by increased overtime.

What if the power situation doesn't get better?

"If it gets worse, then by mid-May the U.S. will begin to see shortages in, say, cars and electronics. We'd be feeling it. Inventories by then would have been run down.