Flooding in Thailand after the worst monsoon season in decades is not expected to have more than a medium-term effect on automakers, Frost & Sullivan analysts said.

The floods are likely to affect automotive assembly in the short term. The production halt might continue for the next few weeks depending on the severity of the flooding situation. Honda, which is the most severely affected OEM, is likely to have a production loss of about 10,000-15,000 units with the closure of its plant for about five weeks, they said.

Toyota and Isuzu are likely to lose the next two-three weeks of production due to shortage of parts supply with loss of estimated production volume to be approximately 30,000-35,000 and 10,000-15,000 units respectively. Frost & Sullivan estimated the overall production volume loss of approximately 80,000-100,000 units for all OEMs in Thailand, if they lose the next two-three weeks of production. However, OEMs are likely to recover from this production loss by increasing working hours and running the plants at full capacity for the next two months.

To compensate for the loss of production in Thailand assembly plants, OEMs are likely to look for a short term production shift to other ASEAN regions, especially Indonesia and Malaysia, F&S said. Honda assembles Civic, Jazz, CR-V and City models in its Thai plant but has the option to build the Jazz model in Indonesia which has already been assembling the model for years.

Impact on International Markets

In 2010 almost 900,000 units vehicles representing 54-55% of total vehicles assembled in Thailand were exported. The main export regions include Australia, New Zealand, Europe, Middle East, Mexico, South Africa and Brunei. The vehicle models that are presently exported from flood affected OEMs include Honda vehicles such as Jazz, Civic, City, Accord and the Toyota Hilux pick-up truck.

Long Term Strategy Change Related to Supply Chain

Supply chain disruptions due to floods have been the main reason for many OEMs to stop their assembly lines. Some of the factors that are likely to be considered by OEMs in the future are:

  1. Increase the stock-pile in terms of auto parts and re-visit the process of JIT (Just In Time) so that OEMs have enough stock for at least a month, if there are any disruptions related to auto parts supply.
  2. Multi-sourcing strategy, involving not only sourcing parts from different suppliers but from different regions, which will have a lower impact, if this situation arises again.
  3. Climatic de-risking of the supply chain involving OEM investments at geographic locations least impacted due to natural disasters. Japanese OEMs in India, especially Honda, have already started increasing their localisation content (80%-90%) and the remaining auto parts are likely to be supplied either from Japan or other ASEAN regions.

"Automotive production in Thailand will be affected in the near term due to the lack of auto parts supply as a result of the floods but is not likely to have a medium-long term effect on Thailand as an automotive production hub in the region," the F&S analysts concluded.

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