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Honda, Toyota face Thai flooding troubles

A cameraman on boat films flood waters near a Honda factory in Ayutthaya on Nov. 6, 2011.


Honda Motor Co. Ltd. has extended production cuts at its Canadian and U.S. assembly plants and Toyota Motor Corp. has scrapped its financial guidance for the year as the Japanese auto industry struggles with flooding in Thailand – the second natural disaster it has faced this year.

The flooding, which occurred just as the industry was recovering from the devastation of the March 11 earthquake and tsunami in Japan, has disrupted supplies of some parts and in the case of Honda has also affected its vehicle assembly plant in the Southeast Asian country.

Honda said Tuesday that it will produce no vehicles at all at its six Canadian and U.S. assembly plants on Nov. 18, making it the second straight Friday with no production. There was one glimmer of positive news, however, in that some plants will operate at more than the 50-per-cent capacity originally envisioned last week when the production cuts were first announced.

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More than 90 per cent of the vehicles Honda sells in the United States and Canada are assembled in North America, which is also the source of most of the parts and components that go in the vehicles. But some electronic parts are produced in Thailand or elsewhere.

Takahiko Ijichi, a Toyota senior managing officer, said Tuesday that the critical parts affected are electronic components, resin parts and some metal parts.

"Approximately 100 items are disrupted in terms of supply," Mr. Ijichi told a conference call on the auto maker's fiscal second-quarter financial results. Honda scrapped its full-year financial forecast last week because of the flooding and the difficulty of determining how long it will take to repair its inundated plant and resuming the parts supplies.

Toyota said six-month profit plunged 72 per cent, mainly because of a massive cut in production in Japan and at other Toyota operations globally because of the March 11 earthquake and tsunami.

But the auto companies – and other manufacturers – are also faced with a soaring currency that is leading to worries about vehicle assembly moving to such lower-cost operations as China and elsewhere.

Satoshi Ozawa, Toyota's chief financial officer, said he expects the company's market share to recover in North America and Europe as production levels return from a post-quake nadir, but he stressed that the yen's strength poses a huge obstacle.

Through disciplined cost cuts and other improvements, Toyota's operations had been on track to break even next year assuming a U.S. dollar rate of ¥85 and sales of 7.5 million vehicles, Mr. Ozawa said.

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But with U.S. dollar trading at about ¥78, he said he is at a loss as to what more to do. The dollar fell to a record low of ¥75.31 in late October, prompting currency intervention by Japanese authorities.

"If you asked me whether we have any specific numerical forecasts [with the current dollar rate] I would be in a very tough spot," Mr. Ozawa said, pointing to the Japanese government to take action to weaken the yen and level the playing field for Japanese exporters competing against rivals from countries whose currencies are cheaper.

Meanwhile, Toyota will take steps to help offset currency losses and keep its commitment of building at least three million vehicles annually in Japan without bleeding profit, he said.

The company will try to sell more vehicles in Japan, raising that number to about 1.5 million from about 1.3 million now. It's also hoping to trim exports to about 1.5 million from 1.7 million.

With files from Reuters

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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