Tide Still Rising On Woes From Thailand Floods - AutoObserver

Tide Still Rising On Woes From Thailand Floods

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The global loss of vehicle production from the floods in Thailand, and ripples throughout worldwide automotive supply chains, could mount to 629,000 units, according to a new analysis. Among the consequences will be continued problems for Honda and Toyota in the U.S. market until mid-2012, in the estimation of one of the brands' biggest American dealers. The effects of the record monsoon-related damage in Thailand already have comprised a huge second whammy for the big Japanese brands on top of the inventory depletion after the March natural disaster in Japan. And while both Honda and Toyota insist they're making progress in re-sourcing some critical supplies and feeding production lines in the United States and elsewhere, the reality is that executives at neither company still don't know quite how bad things could get.

Eight OEMs that build vehicles in central Thailand have halted most or all output since the second week of October, including the Ford-Mazda alliance, Hino, Honda, Isuzu, Mitsubishi, Nissan and Toyota. Industry production losses from the disaster are expected to peak at 322,000 units in October, according to a new analysis by IHS Automotive. October saw the loss of 110,000 units to closed factories in the flood zone and disruptions in production around the world because of the critical electronics, plastic and rubber components built in central Thailand where the flooding is centered. Next month, HIS forecast, production losses will still total 198,000 even as the floodwaters begin receding in some areas and as Honda and other brands make further steps in re-sourcing components.

Honda and Toyota are and will continue to be hit the hardest, especially in the United States. Just as both brands neared the resumption of 100 percent of output for the North American market over the last several weeks, the results of the Thailand flooding caused them to jettison their profit forecasts and have to scramble once again to get enough of a few critical components to feed global supply lines. Now, Honda is saying that it will produce vehicles in the U.S. and Canada only at rates of 50 percent or more through the end of the month and doesn't yet know about production plans for December. And Toyota is still coping with "some unknowns withThailand" including its "long-term inventory impact," Toyota spokesman Mike Michels told Automotive News.

Next Year's Impact
AutoNation CEO Mike Jackson predicted that the combination of the Thai floods with the growing trickle of shoppers back into Japanese-brand dealerships would combine to keep inventories low at Honda and Toyota stores until the middle of next year. "It pushes the recovery out to the end of the first half of next year, until we have reasonable supplies with the Japanese again," he told the magazine. Among the consequences of the continuation of their supply woes will be effects on incentive levels in a new-car market that continues to strengthen slowly. Jackson predicted that continued supply constraints would keep Honda and Toyota from doing much by way of added incentives. But Doug Scott, senior vice president of GfK Automotive, which consults with vehicle brands, said otherwise. "The flooding has kept them in a state where they can't seem to recover, so [Honda and Toyota] are going to be dealing with more incentives for whatever vehicles they've got on the ground so they don't lose share and visibility," he said.

Honda said that "a number of suppliers have been unable to maintain the supply of parts to Honda." But while 87 percent of Honda and Acura autos sold in the U.S. last year were produced in North America, only a few critical Thai-built parts have laid Honda low. Honda's two facilities in Ayutthaya, Thailand, are completely inundated with six feet of water, IHS said, which are expected to take another six weeks to recede. Most equipment at the plant will have to be refurbished or replaced, meaning a several-month recovery period. And while several automakers are struggling to return their production in Thailand back to normal so they can feed increasingly supply-starved markets in southeast Asia again, nearly half of the total units lost to the floods and the aftermath, through next year, will be eliminated in markets other than southeast Asia.

The situation looks more optimistic for Toyota, IHS estimated, with full output in Thailand again expected to occur by the first quarter if supply of components is restored. It will likely be early 2012 before Toyota is able to restore build-back of the lost production, IHS said. But in the meantime, Michels said, "We haven't changed our estimate of when dealer inventories will return to normal, and that is toward the end of the first quarter."

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