Stoppages
could have dire impact on economy's post-3/11 recovery
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.
HIROKO NAKATA
Staff writer
Business & Investment Opportunities
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