Ripples from Thai floods splash Japan

Stoppages could have dire impact on economy's post-3/11 recovery

by Hiroko Nakata

Staff Writer

With Thailand’s worst floods in 50 years surrounding the center of Bangkok, economists are warning that the protracted crisis may hurt Japan’s economy, which had just started to show signs of recovering from the March 11 disasters.

As alarm over the flooding grew Thursday, Toyota Motor Corp. announced it will extend the shutdown of its three assembly plants in Thailand by another week to Nov. 5, and also prolong production curbs in Japan, as well as in the United States, Canada, South Africa, Indonesia, the Philippines and Vietnam.

Facing a potential shortage of parts, Japanese carmakers and high-tech companies have already curbed production in Thailand and some neighboring nations — and even in Japan.

If the production cutbacks last a long time, especially in the car industry, it will deal a severe blow to Japan’s overall production and economy, analysts said.

Automakers’ performance has a major impact on the country’s overall production, as the sector extends to a broad range of related industries, including steel and electronics.

“If the adjustment in car production drags on until the end of November or longer, the impact on overall domestic production would be significant,” said Yuichiro Nagai, an economist at Barclays Capital in Tokyo.

Japan’s October-December output may dip into negative territory if the production curbs last, compared with an expected 4.6 percent rise in July-September, Nagai said.

Barclays currently expects Japan’s gross domestic product to log 4.6 percent growth in July-September and 1.6 percent growth in the following quarter.

The Thai floods are hitting clusters of Japanese auto and high-tech production centers dubbed the “Detroit of Asia,” and they are creating production delays because some plants are submerged and others are running short of parts.

As of Thursday, plants in Thailand belonging to more than 400 Japanese firms in seven industrial districts were still flooded out, and nearly 200 more were under threat of inundation.

All Japanese automakers have stopped operations at their Thai plants since mid-October, just as they were scrambling to recover from the March catastrophe in the Tohoku region.

“Each of us had geared up to full operation to regain what was lost after the earthquake. But the environment surrounding the auto industry is growing increasingly severe,” Toshiyuki Shiga, president of the Japan Automobile Manufacturers Association, said earlier this month, adding that the high yen and increasing global competition were other significant factors. The suspensions translate into 6,000 fewer new vehicles a day, he said.

The stoppages in Thailand, which are creating parts shortages, are starting to have a ripple effect.

Toyota has said the supply of more than 100 different types of auto parts, including electronic components, castings and resinous parts, may run short.

The auto giant said earlier this week it will stop overtime work in Japan at four of its plants, and also at other plants run by its eight group firms until Friday. Under the plan, production will be reduced by 1,200 units a day.

Earlier Thursday, Toyota also said it will suspend production at its four factories in North America on Saturday as a means of “conserving affected parts,” after the flooding in Thailand forced a number of its suppliers to cease output.

Operations will be halted at Toyota’s assembly plants in Indiana, Kentucky and Ontario, and also at its engine manufacturing plant in West Virginia, Toyota said. In total, the three assembly plants have the capacity to make around 25,000 vehicles a week.

Analysts say the focus will be on whether manufacturers facing parts shortages can find alternative suppliers for the next few weeks.

“We don’t expect the floodwaters to go away in a week or so,” said Tadashi Usui, senior analyst in charge of the auto sector for Moody’s Japan K.K. “The focus is on when the water will start to recede next month.”

Many analysts say carmakers normally have inventories for about a month’s worth of production, and since the flooding already has disrupted the entire supply chain for about three weeks, finding more parts has become an urgent matter.

Meanwhile, the outlook appears gloomy.

The Japan External Trade Organization quoted local media reports as saying it won’t be until mid-November before the water at some of the flooded industrial districts will start to recede, and it will take another month before they are completely dry.

Honda Motor Co. said this week that its submerged plant in Ayutthaya, which has been shut since Oct. 4, will not resume production anytime soon.

In other sectors, Canon Inc. said this week it has cut its annual sales estimate by ¥50 billion and operating profit by ¥20 billion for the business year to December due to the Thai floods and the strong yen.

Nikon Corp., which produces about 90 percent of its single-lens reflex cameras and more than 60 percent of its lenses at its Ayutthaya plant, said it is also unable to forecast when it will resume production in Thailand.

And Sony Corp. said last week it was delaying the launch of some high-end cameras indefinitely.