Honda puts new Thai factory on ice

Updated 30/05/2014HONDA has sliced its Thai car production to 60 per cent of capacity and reportedly postponed the construction of a new manufacturing plant that was to have started building cars from next year for both Thailand and export markets, including Australia.

The Japanese manufacturer also has cancelled the night shift at its existing Thai car assembly plant in Ayutthaya province, east of Bangkok, in compliance with curfew demands from the new military rulers who seized power in a coup last week.

Honda’s moves to reduce output are in reaction to bloated inventories caused by a double whammy that includes the cancellation of government first-car buyer subsidies and the volatile political environment that has savaged the local economy.

Thai domestic new-car sales fell 47 per cent in the first quarter of this year compared with the same period last year.

So far, exports of Thai-made vehicles from Honda and other car-makers such as Toyota, Mitsubishi, Isuzu, Mazda, Holden and Ford have been unharmed, with most companies saying it is business as usual.

Honda Australia has told GoAuto that no official announcement has been made on any change to the opening date of the new factory, and that regardless of any possible change, it will not affect supplies of cars to Australia.

The new $US530 million ($A572m) plant it had started building this year in Prachinburi Province, eastern Thailand, reportedly will be put on hold for between six months and a year.

The factory was to start making small cars at the rate of 120,000 a year in April 2015, bringing Honda’s annual capacity in Thailand to 420,000.

Announcing the moved, Honda Automobile (Thailand) Co executive vice president Pitak Pruittisarikorn told Reuters: "We have been worried about the unfavorable conditions since earlier this year, both economic and the political situation."Apart from supplying the local market, the plant was to ship vehicles to other ASEAN countries, the Middle East and Oceania. The biggest market in Oceania is Australia, where more than 70 per cent of Honda cars originate from Thailand.

It is unclear if the models planned for the new plant will also be delayed by the move, or perhaps shifted to Ayutthaya for production.

As GoAuto reported earlier this month, Honda Australia director Stephen Collins said his company was not worried that the current political upheaval in Thailand could result in a repeat of 2011’s stock shortages when floods devastated the Thai Honda plant.

“We have seen over the last number of months where there has been some political unrest but we have seen really no issues in our supply chain,” he said.

This was echoed in Japan by Honda chairman Fumihiko Ike – who is also head of the Japan Automobile Manufacturers Association – who was quoted as saying that even though Thai auto sales had plunged over the past year after a subsidy program ended, the appetite for investment into Thailand remained strong.

"Thailand of course poses risks as a country, but if you ask me whether they are major country risks, I personally do not think that they will have a very big impact on business activities," he was quoted as saying.

Mr Ike said Thailand's auto sales decline since May 2013 has largely been due to the fading effects of a government subsidy program for first-car buyers, which ended in 2012, rather than political unrest.

The scheme – introduced to help Thai car-makers recover from the devastating floods – went bad when about one in 10 of the 1.2 million Thai car buyers who took advantage of the scheme either backed out of the deals or defaulted on repayments, causing a glut of near-new cars.

Thailand is now the second largest source of vehicles for the Australian market behind Japan, with 228,479 out of the 1,136,227 total vehicles sold here last year coming from the South East Asian nation.