Thailand has been inundated with severe floods in its recent history and the recent inundation of floods in Thailand has not only had a major effect on local automotive production and supply chain disturbances but is also likely to have short term effect on regional and global supply of automotive parts and vehicle exports.
Thailand is currently experiencing the worst flooding in the last 5 decades and the automotive sector, which has an annual production capacity of about 2 million units in 2010, has been one of the most affected industries. Besides the effects on the Thai auto market, there are also serious effects on the global supply chain as a large of automotive parts and vehicles are exported from the country.
As shown in the map above (prepared by Frost & Sullivan), most of the heavy flooding is focused in the central province of Thailand with Ayutthaya and Pathumthani provinces that have automotive assemblers and parts suppliers, being the most affected regions. Honda’s assembly plant is located in Ayutthaya and it is the most affected carmaker occurring even with flood inundation within the assembly plant. All the other carmakers’ assembly locations are outside the flood affected regions such as Chachoengsao (Toyota and Isuzu), Samut Prakarn (Nissan and Toyota), Chonburi (Mitsubishi), and Rayong (Auto Alliance Thailand and GM).
Honda has stopped its production for one week mainly because the plant is submerged with water while Toyota has stopped production for the one week mainly due to supply chain disruption in the Ayutthaya and Pathumthani provinces. Ford has resumed its passenger vehicle production after a stoppage but its pick-up vehicle production is still suspended. GeneralMotors (which makes Chevrolet vehicles) is the least affected carmaker, mainly due to its plant location and its supplier base in southeastern Thailand which is outside the flood-affected regions
GM vehicle plant and its new powertrain factory (right), both in Rayong in the southeast area of Thailand, have escaped the floods and can continue production but are susceptible to parts shortages
if they are dependent on suppliers who are in the flooded areas and have had to stop operations
The severe effect on autoparts makers has caused a serious disruption in the supply chain structure. This situation has had a cascading effect on automotive assembly and production in Thailand. Almost 10% of total auto parts for local production come from flood-affected regions. Toyota, Auto Alliance Thailand, Mitsubishi Motors, Nissan are all dependent on autoparts makers which have factories in the flood-affected areas; in the Ayutthaya and Pathumthani provinces, there are some 40 suppliers.
Just one part not supplied to the assembly line and the car cannot be completed at all
The unprecedented situation is likely to affect automotive assembly in the short term. The production halt might continue for some weeks depending on the severity of the flooding. Honda is likely to have a production loss of about 10,000-15,000 units with the closure of its plant for up to 5 weeks. Toyota and Isuzu are likely to lose the next 2-3 weeks of production due to shortage of parts supply with loss of estimated production volume to be approximately 30,000 - 35,000 units and 10,000-15,000 units, respectively. Frost & Sullivan estimate the overall production volume loss of approximately 80,000 - 100,000 units for all carmakers in Thailand if they lose the next 2 - 3 weeks of production. However, they are likely to recover this production loss by ramping up their production for the next 2 months by increasing the working hours and running the plants at full capacity.
To compensate for the loss of production in Thai assembly plants, the carmakers are make a short-term production shift to other ASEAN countries such as Indonesia and Malaysia where they have assembly operations for certain models as well. For example, Honda also assembles the Jazz in Indonesia so it could transfer production there for a while.
Almost 900,000 units vehicles representing 54% - 55% of total vehicles assembled in Thailand were exported in 2010. The main export regions were Australia, New-Zealand, Europe, the Middle East, Mexico, South Africa and Brunei. The vehicle models presently exported are vehicles such as Honda’s Jazz, Civic, City, Accord and Toyota’s Hilux.
Disruptions in the supply of parts have been the main reason for many carmakers’ plants having to stop their assembly lines. Some of the factors that are likely to be considered by the carmakers in future are:
Honda's factory in Indonesia also produces the Jazz (including stamped parts) and could take over production from the Thai plant in the short-term
• Increase the stockpile in terms of parts and revisit the process of JIT (Just In Time) so that there is enough stock at the vehicle assembly plant for at least a month if there are any disruptions related to autoparts supply;
• Multi-sourcing strategy that involves not only sourcing parts from different suppliers but from
different regions that will have a lower impact if this situation arises again;
• Climatic de-risking of the supply chain that involves carmakers’ investments at geographic locations that are least impacted due to natural disasters.
The Japanese carmakers in India, especially Honda, have already started increasing their localization content (80% - 90%) and the remaining autoparts are likely to be supplied either from Japan or other ASEAN countries.
The 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 to long-term effect on Thailand as an automotive production hub in the region.
