Vietnamese auto industry affected by floods in Thailand

The flooding that has ravaged Thailand over the past three months has hurt not only the country’s automobile industry but also that of Vietnam, as Thailand is a major provider of auto parts here.

“The floods in Thailand affected all direct imports from Thailand, including parts and already assembled vehicles,” Akito Tachibana, President of Toyota Vietnam, told Thanh Nien Weekly. “Japan, the Philippines, Indonesia, Malaysia, Pakistan, North America, South Africa and Vietnam are all affected by the floods in Thailand at this moment.”

The ability to supply parts and components for the manufacture and assembly at the Toyota plant in Vietnam has been reduced, he said. “We are working closely with Toyota Motor Thailand and Toyota Motor Corporation to determine the specific impact level to Toyota Vietnam’s production. At present, the Vios model has had the heaviest impact, followed by Corolla Altis, Fortuner and Innova.”

Toyota Vietnam’s imports of auto parts from Thailand account for 45.6 percent of its total imported parts for production.

Koji Onishi, general director of Honda Vietnam, said his firm is closely following the flooding situation in Thailand. A Honda automobile plant in Thailand has temporarily ceased production since early last month, which caused a lower supply of spare parts in some Asian markets, including Vietnam.

Meanwhile, the supply of spare parts at Ford Vietnam has been also affected by the floods, as it imports spare parts from Thailand too.

A representative of Ford Vietnam said: “Thailand’s flood situation has affected a number of our suppliers operating in Ayutthaya province. We are working with all of our suppliers on a daily basis to minimize disruption to our production…”

Due to the thinner supply of spare parts, automobile makers in Vietnam have cut production.

Onishi said Honda Vietnam had adjusted its production plan to cope with the situation.

Meanwhile, Tachibana said Toyota Vietnam has also revised its production plan by reducing productivity and adjusting its working hours at the production department in November.

“Until now, as estimated, production will be reduced by about 20 percent compared to the original plan,” he said, adding from November 7 to 19, the working days have been reduced to only three days a week.

At the moment, a lot of Toyota customers are waiting to receive cars. With a temporary manufacturing reduction, customers will have to wait longer than the scheduled delivery, he said.

“Regarding the sales plan for 2011, we have set the sales target based on our maximum capacity of production. Faced with this reduction, Toyota Vietnam may not reach our original sales target,” he said.

Assessing the market in 2011, Tachibana said his company has been affected by the earthquake and tsunami in Japan and now by the floods in Thailand.

For the whole market in general, a slow economy together with tightened monetary policy, an unstable exchange rate and high interest rates, have resulted in a slump for the automobile market.

However, despite the difficulties, the real demand for owning cars is still high, Tachibana said.

“Even when the sales volume for commercial cars decreases, the sales for personal cars still increase and thus the total volume for the whole market will still reach 150,000 units, the same as 2010,” he said.

Local car makers sold 89,930 units in the January-October period, up by 2 percent year-on-year, according to the Vietnam Automobile Manufacturers’ Association. Sedans still recorded high growth of 29.7 percent compared to the same period of last year, while multi-purpose vehicles inched up 1 percent.

After the flooding in Thailand, more foreign investment is expected to be poured into Vietnam’s automobile industry as money leaves the submerged factories there.

However, a local expert said this won’t happen as the support industry for car production in Vietnam is too weak.

A representative of Ford Vietnam said Vietnam is considered a potential market in the Asia-Pacific region and Ford had committed to long-term investment here, but he said he could not reveal its expansion plans at this moment.

BOX: THAI FLOODS MAY SHIFT JAPAN INVESTMENT TO INDONESIA, VIETNAM

Japanese companies, Thailand’s biggest foreign investors, may spend more to build factories in neighbors including Indonesia and Vietnam after the worst flooding in 70 years disrupted global production.

“Executives recognize the concentration risk after the floods,” said Takahiro Sekido, chief Japan economist at Credit Agricole CIB in Tokyo. “The recent trend of accelerating investment into Thailand will cool despite the fact that Thailand was such an ideal destination.”

Prime Minister Yingluck Shinawatra has proposed spending 130 billion baht (US$4.2 billion) on reconstruction and steps to prevent future floods. She seeks to reassure investors that Thailand remains a safe place for business, as companies including Pioneer Corp., Honda Motor Co. and Toyota Motor Corp. scrapped profit forecasts after the floods shut factories.

The disaster has rippled through the supply chains of Japanese auto and electronics makers, as parts shortages affected operations across the globe.

Honda said Monday it will continue output reductions at its plants in the US and Canada until November 30 and will operate normal production shifts on December 1 and 2 as it recovers from shortages of parts from Thailand.

Canon Inc., Nissan Motor Co., Hitachi Ltd. and Toshiba Corp. all halted production at Thai factories because of the floods.

The distribution of Japan’s supply chain across the region may shift as well amid increasing local consumption and plans to unify the region’s economy.

The 10-member Association of Southeast Asian Nations, or ASEAN, is targeting 2015 for the creation of a single-market economic zone modeled after the European Union, without a common currency. Japan was the biggest investor in the bloc from 2008 to 2010, topping the US and China, according to ASEAN statistics.

Indonesia and Vietnam, which both attracted more foreign direct investment than Thailand last year, look set to attract more Japanese investment, said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo.

“Indonesia has a large population and its domestic demand is quite strong, while Vietnam’s population is increasing,” he said. The two countries account for more than half of the 591 million people in the countries that comprise ASEAN, the organization’s statistics show.