Thai auto industry impacted by global economic downturn

By Jon Fernquest

Like a breaking wave, the global financial crisis is now spreading into the global real economy.

Both Toyota and General Motors announced production cuts in Thailand last week

With production cuts come job cuts.

Likely scenario: 1. reductions in overtime and hours worked by each employee together with 2. early retirements, to lessen the impact. Next, 3. more drastic  employee layoffs kick in. Temporary contracted staff go first, then across-the-board reductions in permanent staff.

Production cuts also travel up the supply chain of the automobile industry.

Not all production work and value-added to a product is done in-house by a company's own employees. Thai auto parts companies provide parts to Thai automobile manufacturers.

The sales of each automobile manufacturer depends on the kinds of automobiles that the manufacturer produces.

So far the market for passenger cars with customers mostly middle income earners have been less affected by the global economic crisis than the pickup truck market. Pickup truck sales have been hard hit because this sector relies on Thai farmers and foreign exports. So far, Toyota producing mostly pickup trucks has been affected worse by the crisis than Honda which produces mostly passenger cars and motorcycles (Read article on Thai auto export outlook next year). 

Read about the recent history of Thailand's automotive industry in an article included in Thai Capital after the 1997 Crisis (2008), by Pasuk Phongpaichit and Chris Baker, Chiang Mai: Silkworm Books (See book page).

Also read the article Sea of Unwanted Imports about Asian car exports accumulating at LA's harbour in the New York Times last week (Read article).

Today's article in full follows after the vocabulary:

Auto-parts firms brace for hit

Big customers may cut output sharply
VICHAYA PITSUWAN
Monday November 24, 2008 

Thailand's auto parts manufacturers are keeping a close eye on the health of their big carmaking customers as production cuts intensify in line with slowing demand worldwide.

Industry executives agree the sector will contract but the severity of the impact remains to be evaluated, while their ability to survive the crisis will depend on adaptability and the duration of poor business conditions.

Outlook for Denso Thailand

One of the country's top auto-parts players, Denso (Thailand), a vehicle air-conditioning and powertrain control component maker with 3,000 manufacturing employees, is already bracing for a severe contraction.

"More than 95% of our production is to serve vehicle and motorcycle assembly plants, while only 5% relies on replacement part sales to the repair services segment," said Denso director Thavorn Chalassathien.

Eighty percent of Denso's output is sold to Thailand-based automakers led by Toyota, Isuzu and Honda in that order, so any decisions they make to cut production will have major implications.


Toyota Motor Thailand (TMT) last week confirmed plans to make 40,000 units fewer than normal from December to April. It has also cut its 2009 production target from 500,000 units to 450,000 on expectations that exports will slow considerably. It has estimated it would produce 570,000 vehicles this year (Read Bangkok Post article).

As well, General Motors said last week that it would suspend production in December and January at its Rayong plant while keeping its 2,000 workers on at 75% pay (Read Bangkok Post article)

Mr Thavorn predicted Denso's revenue would drop by 10% in the year to come. However, he believes the company can manage by cutting overtime without the need to lay off workers.

Outlook for Thai Summit Mitsuba Electric Manufacturing  (TSMEC)

Chon Buri-based Thai Summit Mitsuba Electric Manufacturing Co (TSMEC), which employs 570 full-time workers making electrical starters and power window motors, forecasts a 4-5% decline in revenue next year from an estimated 3.4 billion baht this year.

Deputy general manager Sutat Phengphon said that more than 60% of TSMEC's output was for Honda passenger cars, so the company may see less impact than other parts makers.

Passenger cars have been one of the few bright spots in the local industry this year as drivers seek more fuel-efficient vehicles.

"We don't supply parts for Toyota, which announced serious production cuts, as Toyota here mostly produces pickup trucks for export," Mr Sutat said.

"With farm product prices tumbling and stricter rules on car [financing], farmers who are customers for trucks cannot buy more, which is reducing truck demand. But for passenger cars that serve middle-income earners, demand should be more sustainable."


In addition, he believes the company's other main market, motorcycle assemblers, will be less affected than carmakers. Half of the company's motorcycle parts go to Honda, which dominates the Thai market with a 67% share.

"Given Honda's strong loyalty among motorcyclists here, the suppliers for other brands with lower market share, such a Suzuki or Yamaha, will be more affected," he said.

Even if business becomes worse than expected, Mr Sutat said the company could respond by cutting overtime and would not shed jobs.

Thaveekij Japurajarernkul, the labour committee chairman of the Federation of Thai Industries (FTI), is less optimistic. He forecast that the auto-parts industry would be among the hardest hit in the current slowdown, with overall orders falling 30% next year.

"If demand falls by 30% as projected, employment cuts to keep businesses alive are highly possible, but this will depend on each company's survival skills," he said.

Mr Thaveekij said the current slump could be worse than during the 1997-98 crisis, when local producers were able to rely on export sales to offset the plunge in local demand. This time around, vehicle demand is falling all over the world.


(Source #1: Bangkok Post, business, Auto-parts firms brace for hit, VICHAYA PITSUWAN, 24-11-08, link)

(Source #2: Bangkok Post, business, 22-11-08, Toyota retains regular Thai staff, NAREERAT WIRIYAPONG SANTAN SANTIVIMOLNAT, link)

(Source #3: Bangkok Post, business, 20-1108, Two-month shutdown for GM, Rayong workers kept on but pay cut 25%, SANTAN SANTIVIMOLNAT and NAREERAT WIRIYAPONG and VICHAYA PITSUWAN, link)

Posted by Jon Fernquest at 12:09 PM | Permalink | Comments (0)