Frost & Sullivan Market Insight   Published: 24 Oct 2011
Impact of Thailand Floods on Automotive Industry and Supply Chain
Date Published: 24 Oct 2011

By Vivek Vaidya, Vice President, APAC, Automotive & Transportation and Vijay Rao, Research Manager, APAC, Automotive & Transportation

Thailand has been inundated with severe floods in its recent history 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. 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.

Impact of the Flooding in Thailand – Current Situation

1. Halt of Automotive Production in Thailand Assembly Plants.

Thailand is currently experiencing the worst flooding in the last five decades and it is affecting the automotive production. 26 of the 90 provinces in Thailand have been affected by floods and assembly plants and parts maker factories located mainly in and around Ayutthaya and Pathumthani provinces were also affected. Japanese OEMs such as Toyota, Honda, Mitsubishi, Isuzu, Nissan and American OEMs such as GM and Auto Alliance (Ford and Mazda) have assembly locations in Thailand with a combined annual production capacity of approximately 1.7 million – 1.8 million units.

Chart 1– Current flooding situation in Thailand and OEM assembly locations

Note: The red shaded areas are the provinces that are currently affected by floods
                                                                  Source: Google Maps, Frost & Sullivan

As seen in the map, 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 assembly plant is located in Ayutthaya and hence has been the most affected OEM with flood inundation within the assembly plant. All the other OEM assembly locations are outside the flood affected regions such as Chachoengsao (Toyota and Isuzu), Samut Prakarn (Nissan and Toyota), Chonburi (Mitsubishi), Rayong (Auto Alliance Thailand and GM).

Honda has stopped its production for the next 1 week mainly because the plant is submerged with water while Toyota has stopped production for the next one week mainly due to supply chain disruption in Ayutthaya and Pathumthani province. Ford has resumed its passenger vehicle production from this week while its pick-up vehicle production has been halted as of now. General Motors is the least affected OEM mainly due to its plant location and its supplier base located outside the flood affected regions.

Table 1 – Impact of floods on different OEMs and estimated production loss

2. Supply Chain Disruption

The severe effect of flooding has had its effect on auto parts maker and as a consequence the disturbance 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 region. Toyota, Auto Alliance Thailand, Mitsubishi Motors, Nissan are all dependent on auto parts maker in the flood affected region. Ayutthaya and Pathumthani provinces which are affected due to floods have around 40 auto parts suppliers supplying to most assembly plants in Thailand.

Impact of the Flooding in Thailand – Future Strategies likely to be adopted by OEMs

Chart 2– Short and Long Term Strategies Likely to be Adopted By OEMs

1. Short Term Production LossThe flooding situation is likely to affect automotive assembly in the short term. The production halt might continue for the next few weeks depending on the severity of the flooding situation. Honda, which is the most severely affected OEM, is likely to have a production loss of about 10,000-15,000 units with the closure of its plant for about 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 and 10,000-15,000 units respectively. Frost & Sullivan estimate the overall production volume loss of approximately 80,000-100,000 units for all OEMs in Thailand if they lose the next 2-3 weeks of production. However, OEMs 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.

2. Short Term Production Shift to Other ASEAN regions

To compensate for the loss of production in Thailand assembly plants, OEMs are likely to look for short term production shift to other ASEAN regions especially Indonesia and Malaysia. For example: Honda assembles Civic, Jazz, CR-V, City models in the Thailand assembly plant. To overcome the assembly stoppage in Thailand plant, Honda has an option to assemble the Jazz model in Indonesia which has already been assembling the model over the years.

3. Impact on International Markets

Almost 900,000 units vehicles representing 54-55% of total vehicles assembled in Thailand were exported in 2010. The main export regions include Australia, New-Zealand, Europe, Middle East, Mexico, South Africa and Brunei. The vehicle models that are presently exported from flood affected OEMs includes Honda vehicles such as Jazz, Civic, City, Accord and Toyota Hilux pick-up truck

4. Long Term Strategy Change related to Supply Chain

Supply Chain disruptions have been the main reason for many OEMs to stop their assembly lines due to floods. Some of the factors that are likely to be considered by OEMs in the future are

  • Increase the stock-pile in terms of auto parts and re-visit the process of JIT (Just In Time) so that OEMs have enough stock for at least a month if there are any disruptions related to auto parts 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 supply chain that involves OEMs investments at geographic locations that are least impacted due to natural disasters. Japanese OEMs in India especially Honda have already started increasing their localisation content (80%-90%) and the remaining auto parts is likely to be supplied either from Japan or other ASEAN regions.

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-long term effect on Thailand as an automotive production hub in the region.