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Car makers can ride out flood chaos

The automobile industry remains fundamentally strong and would recover in full strength from the floods that disrupted the supply chain, just like it did after the two major crises in the last two decades, industry spokesmen said yesterday.

“The Thai automobile industry has reserves of strength, so I’m confident the industry still has an opportunity to grow and I don’t think investors here will relocate elsewhere because of a mere short-term disruption,” said Piangjai Kaewsuwan, vice president for government relations at Nissan Motor (Thailand).

The two challenges were the Tom Yum Kung financial crisis in 1997 and the Hamburger crisis in 2009.

While the earlier one raised the financial costs of operators and extinguished domestic demand in the aftermath of the baht’s depreciation and launch of austere reform measures, the latter led to a worldwide plunge in auto demand.

The severe flooding in Ayutthaya is now hurting the industry badly. According to Tisco Securities, over 20 major suppliers are located in Rojana Industrial Park, which was entirely submerged.

Yesterday, Aapico Hitech, a major supplier to Honda, also suspended operations at its plant in the Hi-Tech Industrial Estate, following an evacuation order and power shutdown.

Honda Automobile (Thailand), with annual capacity of 240,000 units, suspended operations at its assembly plant in the industrial park. Ford and Toyota Motor Thailand, with plants outside Ayutthaya, also suffered from the supply chain disruption.

Ford yesterday resumed one shift of operations while Toyota’s suspension would continue until tomorrow. There is fear that this year’s output may miss the target of 1.8 million units.

Piangjai, who is also chairwoman of the Thai Automotive Industry Association, said she was confident more Japanese auto-parts manufacturers would come to Thailand and other countries in Asean, in the aftermath of the great earthquake and tsunami in March.

“As the largest manufacturing base in this region, Thailand should benefit from the relocation,” she said.

Thailand’s attraction lies in the extensiveness of the industry. The country is the largest car manufacturing base in Asean, the seventh largest in Asia and 13th in the world.

Asia has become a major export market for the Thai auto industry in the last five years, with growth of 15 per cent per year.

Auto penetration in Thailand is still low at one vehicle per 6.8 consumers, compared with one vehicle per two people in Japan and the US. The rates in other Asean countries such as Indonesia and Vietnam are one vehicle per 38 and 89 consumers, respectively. This shows there is room to grow in both Thailand and Asean countries, she added. Supawan Pornvuthikorn, general manager for government affairs at Toyota Motor Thailand, said the outlook for the domestic pickup market remains bright thanks to the growing population and rising agricultural prices, which bring good income to Thai farmers.

Toyota predicts that domestic pickup demand will reach 4.67 million units by 2030.

The major overseas markets for Thai pickups, such as Asean, Australia and the Middle East, were in good shape, while the financial crisis in Europe would not dent exports much, as the market accounts for 12 per cent of total exports.

Toyota expects continued growth in demand, thanks to the government’s support. However, the government should give manufacturers a lead-time of at least five years to adapt if it plans to introduce any changes to policies, she added.

Source: The Nation

ThaiVest Editorial Team

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