Toyota, Honda May Not Recover Output Until 2012 With Thai Flood

Thai Floods Disrupting Japanese Car Production Worldwide
Honda Motor Co., which made about 5 percent of all its cars in Thailand last year, said its factories may be flooded until mid-December. Photographer: Christophe Archambault /AFP/Getty Images

Plans by Toyota Motor Corp. and Honda Motor Co. to run factories overtime to recoup production lost to parts shortages caused by Japan’s earthquake may be delayed until early 2012 because of flooding in Thailand.

Toyota, Asia’s biggest carmaker, is scaling back output in Japan for a third week and suspended overtime in North America for a second week as disruptions from the floods spread. Honda is temporarily eliminating overtime and running North American plants at half capacity until next week as Japan’s third-largest automaker assesses its inventory.

“For both Toyota and Honda, they really won’t be able to expand production as planned until the first quarter of 2012,” said Tracy Handler, a Troy, Michigan-based analyst with IHS Automotive. “They’ve certainly been really unlucky this year.”

Thailand’s floods are the biggest auto industry disruption since the March 11 earthquake and tsunami in Japan, which cut vehicle production for Toyota and Honda for five months, and prompted Honda to abandon its earnings forecasts. Plants in Thailand may be halted until December, according to the Federation of Thai Industries’ automotive club.

Toyota, scheduled to report financial results next week, said it hasn’t decided on its production plans from Nov. 14 onward as it continues to assess the situation.

Mike Goss, a spokesman for Toyota’s North American manufacturing unit, and Ron Lietzke, a spokesman with Honda’s factory unit in Marysville, Ohio, both said the companies are still reviewing parts supplies and aren’t discussing production plans beyond mid-November.

Ford Suppliers

Separately, Ford Motor Co. told suppliers it will resume car assembly at its Auto Alliance Thailand factory on Nov. 14 after flooding disrupted production, Todd Nissen, a spokesman for the U.S. automaker, said in an e-mail.

Suppliers will be updated Nov. 17 about restarting truck production, he said. Dearborn, Michigan-based Ford owns 50 percent of Auto Alliance Thailand in Rayong and the rest is held by Mazda Motor Corp. and a local affiliate of the Hiroshima, Japan-based company, according to a Ford website.

Toyota and Honda “will feel the pain in the current quarter of these disruptions,” said Efraim Levy, a New York-based equity analyst for S&P Capital IQ, who rates Toyota’s American depositary receipts “hold,” and Honda’s “buy.” Levy, who hasn’t yet calculated the financial effect of the companies’ ongoing production losses, expects both to fully restore output by next quarter.

“Barring other unforeseen circumstances, there should be enough production that you shouldn’t notice the difference,” he said.

Japanese Factories

Toyota’s reduced hours for Japanese factories, which began Oct. 24, will be extended until at least Nov. 12, the Toyota City, Japan-based carmaker said on its website.

Toyota’s plants in the U.S. and Canada will continue to suspend overtime and Saturday output, while facilities in South Africa, Indonesia, the Philippines, Vietnam, Pakistan and Malaysia will also reduce production next week.

Toyota estimates the floods prevented it from making 69,000 vehicles in Thailand since Oct. 10, and 22,000 units in Japan since Oct. 24, said Dion Corbett, a company spokesman.

Honda this week said North American auto production will be halved through Nov. 10, canceled Saturday overtime for November and said the release of the redesigned CR-V compact sport-utility vehicle may be delayed “several weeks.” The Tokyo-based carmaker also warned that it may announce subsequent production cuts depending on parts supply.

Production Cuts

“The risk for both Honda and Toyota is the longer this drags on and the longer they have shortages, the more difficult the comeback is and the longer the comeback is,” said Jeff Schuster, senior vice president of auto industry forecasting at LMC Automotive in Troy, Michigan.

“Given how much more competitive the industry has become, they may have to spend more in incentives, for example, to win back buyers after production recovers,” Schuster said.

In Thailand, two Honda plants in the Rojana Industrial Park have been submerged since Oct. 6, Jessada Thongpak, an analyst at IHS Global Automotive, said in a report yesterday. “It may take until late 2012 to rebuild both plants,” Thongpak said.

Toyota and Honda both rely on Thailand for some electronic components, plastic and rubber parts. With reduced production this year, U.S. sales for Toyota fell 8.8 percent through October, and Honda’s dropped 5.3 percent.

Toyota’s American depositary receipts, representing two ordinary shares, fell 0.3 percent to $65.18 in New York yesterday. Honda’s ADRs rose 0.5 percent to $30.56.


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