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Japan Car Makers Trim Output Due to Lack of Thai Parts

The floods in Thailand and a rising yen have delivered a one two punch to the Japanese motor industry.
By Amiel Ungar
First Publish: 10/27/2011, 4:32 AM

The Japanese economy, in the first part of the year, sustained the tremendous damage caused by natural disasters that were compounded  soon after by the nuclear reactor meltdown.

Now a natural disaster outside of Japan is taking its toll on recovery plans predicated on accelerated production during the latter half of the year to compensate for the sluggish first half.

The flooding in Thailand is forcing Japanese automakers to trim production at  their assembly plants in Japan because these plants are dependent on parts from suppliers in Thailand.

It was the Japanese auto industry that revolutionized production methods  with its "just in time" method. This system avoids keeping a supply of spare parts on hand that can be pilfered and have to be paid for in advance; the parts are scheduled to arrive just when they are needed.

Now with the Thai factories shut because they are under water, Toyota motors will be losing 6300 units a week. This comes on top of 37,500 units lost in the Thai assembly plants that are shut down. Honda and others are similarly affected.

The Japanese government has offered extra loans and insurance and Japanese companies have tried to source products in other parts of Southeast Asia. Japanese companies are even willing to accept Thai engineers and workers for temporary work in Japan till the Thai factories can resume production.

But the Japanese auto industry is also reeling from the appreciation of the yen. Due to the European debt crisis, investors have been seeking stable currencies as a haven. Switzerland barred massive foreign purchases of the Swiss franc in order to keep its economy competitive. This left the Japanese yen as the only option.

Toyota based its calculations on a rate of ¥80 to the dollar but the current rate is under ¥76 to the dollar. Every time the exchange rate falls by a single yen Toyota loses $450 million in operating profits.

The strength of the yen also makes Japanese cars more expensive in foreign markets and Japan's Korean competitors – Hyundai and Kia Motors are increasing market share at the expense of the Japanese motor industry. Even the restructured US auto industry has benefited from Japan's problems.

Not only automobiles are affected by the flooding. As Thailand produces more than 50% of the world's hard disk drives, the personal computer industry will be impacted. Canon has scaled down profit expectations from camera sales and has put its flagship inkjet printer on hold because the body is manufactured in Thailand.