Thailand's worst flooding in 50 years is deteriorating by the day and has now begun to affect major automakers' output in Japan and other Association of Southeast Asian Nations (ASEAN) countries
IHS Global Insight Perspective | |
Significance | With the floodwaters now threatening to engulf Bangkok's main domestic airport and showing no signs of receding in the immediate term, major automakers' output in Japan and other Association of Southeast Asian Nations (ASEAN) countries has started to be affected. |
Implications | The continued worsening of the floods has led to a near complete shutdown of the Thai auto industry, with the impact on vehicle production expected to leave light vehicle production well short of its 1.8 million target and recovery to run into the first quarter of 2012. |
Outlook | Global automakers' reliance on Thailand as a regional automotive parts supply and assembly hub has led to Asia-wide ramifications, with a number of them now likely to alter their supply chains and look for alternative short-term procurement arrangements in the coming months. |
Toyota said yesterday (24 October) that it would trim production at its Japanese vehicle assembly factories this week, from 24-28 October, due to a shortage of Thai-made parts as floods in that country disrupted supply, reports Reuters. Toyota will suspend overtime hours from Monday to Friday of this week at four factories in Aichi Prefecture, which make sedans, subcompacts, minivans, and hybrids. The assembly plants of five of its group firms, including Toyota Auto Body, Central Motor, and Kanto Auto Works, are also to reduce overtime during the same period. Toyota has no plans, however, to suspend production at its plants in North America. The company had previously also said it would scale back production in Indonesia, the Philippines, and Vietnam because of difficulties exporting some parts from Thailand. The carmaker estimates the disruption in the parts supply chain has affected about 100 kinds of parts, including electronic items.
Toyota has also suspended production in Thailand at least until 28 October, estimating lost output as of last week at 37,500 vehicles at its South-East Asian export hub. Toyota Motor Thailand (TMT) senior vice-president Vudhigorn Suriyachantananont announced on Friday (21 October) that production at the company's three plants in Samrong, Gateway, and Ban Pho will be halted for another week after two consecutive weeks of suspension following the disruption in the supply of auto parts as a result of flooding. TMT said that it will make a decision on resuming normal Japanese production from 29 October onwards "based on an assessment of the situation as it develops." The automaker said that production levels for next week and afterwards had not yet been decided.
Honda has also decided against reopening its Thai factories this week as the country continues to suffer from severe flooding. Honda's motorcycle factory in Bangkok has also been closed since 11 October due to parts shortage. Mazda, too, has decided to keep its joint venture plant with Ford closed until Friday (28 October). The Ford-Mazda facility has not been inundated but stopped running last week due to difficulty procuring parts. Mazda is considering shipping parts to the facility from Japan and China.
Meanwhile, Mitsubishi has decided to keep its vehicle assembly plant at Laem Chabang temporarily halted at least until 31 October, the automaker said. The company had earlier suspended production at the plant from 13 October to 22 October.
Outlook and Implications
The devastating floods that have struck Thailand since the beginning of this month continue to intensify. Production stoppage in Thailand had previously been announced for the period from 10 October to 22 October (see Thailand: 17 October 2011: Thai Floods Force Toyota, Honda to Extend Output Suspension to End of Week). Toyota's move to scale back domestic production for five days is an indication that the massive flooding in Thailand has started to impact automobile output elsewhere, particularly Japan. It is notable that Toyota's assembly plants in Thailand have not been damaged directly by the floods but have been shut since 10 October because of difficulties procuring parts (see Thailand: 17 October 2011: Thai Floods Force Toyota, Honda to Extend Output Suspension to End of Week). Toyota's factories in Japan had increased output by operating longer-than-normal business hours and had been making steady progress in a bid to make up for production cuts caused by the March earthquake and tsunami. In August, Toyota posted a 12% year-on-year (y/y) rise in domestic production, the first such gain in 12 months. While September output results have not yet been disclosed, Toyota's September domestic sales rose just 0.7% y/y and its United States sales during the month fell 18% y/y. Toyota's proposed output reduction by eliminating overtime in its domestic facilities through the week will stifle its domestic output by an estimated 6,000 vehicles or slightly less than 10% of its total domestic production. If the supply-chain problems arising from the Thai flood worsening continue to extend beyond the end of this month, they could potentially hamper Toyota's post-quake plan to make up for all lost production by year end.
Many automakers in Thailand are considering establishing alternative supply networks by temporarily moving production elsewhere or procuring parts from other places such as Japan. For instance, Mazda, which has stopped its Thai production entirely since 19 October, is considering bringing in parts from outside Thailand. For the Mazda2 and Mazda3 models, the company may procure auto parts from Japan and China as a temporary measure. In contrast, Mitsubishi has decided to keep its vehicle plant in Chonburi Province (Thailand) idled this week.
Meanwhile, the floods in Thailand are affecting vehicle production across South-East Asia as well. While, Toyota has scaled back production at its plants in Indonesia, the Philippines, and Vietnam, Mitsubishi has followed suit by reducing working days at its plants in Indonesia and the Philippines to three a week and slowing down the pace of production at its plant in Vietnam. Honda's affiliate in the Philippines, Honda Cars Philippines Inc. (HCPI), is experiencing a shortage of completely built-up (CBU) units owing to closure of Honda's Ayutthaya plant in Thailand that has been worst affected by the recent flooding (see Philippines: 14 October 2011: Honda Philippines Facing Disruption to Supply of CBU Units from Thailand). Thailand supplies 70% of CBU units to HCPI and the company is working to overcome the disruption and minimise the impact on customers and dealers. Models including the CR-V, Jazz, and Accord are imported from Thailand in CBU form, with these accounting for 30% of HCPI's sales, while locally assembled models make up the remainder.
The Thai deluge has killed more than 360 people and affected 9 million more in Thailand since 25 July. Thailand's auto sector, the biggest in South-East Asia, will now miss its output target of 1.8 million units this year. IHS Automotive's most recent estimate on light-vehicle production is approximately 1.64 million, down from 1.77 million before the disaster. Some of the flood-hit manufacturers at five industrial estates in Thailand's central Ayutthaya province could be operational again from the middle of December, depending on how quickly disrupted supply chains can be restored, but the knock-on effect will take until at least into the first quarter of 2012 to recover the lost production.