Mother Nature Deals Japanese Automakers Another Setback

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Researched by Industrial Info Resources (Sugar Land, Texas)--The automotive sector entered 2011 filled with hope that this would be the year when things finally got back to normal. This has been the case for U.S. automakers, but for Japanese automakers, the year has been something else entirely. Just when momentum was beginning to build at the end of the first quarter, Mother Nature reared her ugly head and delivered a major blow to the Japanese automakers in the form of an earthquake and a tsunami that rocked the home island and caused the automakers to virtually shut down production for some time. Just when the Japanese appeared to be back on their feet with production humming along, Mother Nature popped up yet again, this time in Thailand, and has caused the automakers some significant problems.

Both Toyota Motor Corporation (NYSE:TM) (Toyota City, Japan) and Honda Motor Company (NYSE:HMC) (Tokyo, Japan) have been forced to cut back production of vehicles and parts as a result of the damage caused by the severe flooding in Thailand. Dubbed the worst flooding seen in the country in decades, the rising waters have caused automakers to cease production at key parts-manufacturing plants and, in some cases, assembly facilities that call Thailand home. The flooding, which began in July, has wreaked havoc on the automakers' supply chains, and the effects of these shortages has begun to ripple through their entire infrastructure.

The Japanese automakers had already ceased production at facilities in Thailand, for obvious reasons, and had been curtailing production at facilities all across Southeast Asia in recent weeks. However, the flooding has continued, and Toyota announced last week that it would be stopping production activities at its plants in North America for the weekend. Toyota's assembly plants in Ontario, Indiana and Kentucky, as well as its engine manufacturing plant in West Virginia were closed over the weekend, a severe blow to the automaker that has been in the process of making up production from the disasters in March.

Honda did not close any of its North American manufacturing plants but has curtailed its total production in the U.S. and Canada by 50% for a period of time. The automaker is currently planning to maintain these cuts through November 10 and is planning to cease all production in the U.S. and Canada on November 11 for an undetermined length of time. All overtime work for November has been cancelled. These cutbacks in production come on the heels of Honda announcing that its net profits for its fiscal second quarter, which ran from July through September, declined by $788 million and that quarterly global sales were down by 16.3% when compared to only a year ago.

Officials in Thailand have stated that they expect to get the seven submerged industrial estates up and running again in about three months but this could be pushed back if new bouts of flooding occur. These industrial parks house the manufacturing plants for global companies such as Toyota and Honda and were devastated by the severe flooding that hammered the country. Thousands of factories have been closed across Thailand, and millions of acres of crops have been destroyed in recent weeks. The total costs associated with the damage will be severe.

These setbacks for the Japanese automakers have turned what was a bad year into a dismal year. Any hopes of catching back up to their competitors in both production and sales have gone right out the window thanks to Mother Nature. Toyota had been the No. 1 global automaker entering 2011, but General Motors Company (NYSE:GM) (GM) (Detroit, Michigan) has regained the position, and given how well GM is currently doing, the company is unlikely to give up the title in the near future. The best the Japanese automakers can hope to do is call 2011 a wash and try and forget about everything that has happened this year, while focusing on 2012 and starting over with a clean slate.

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