Thai Floods Put Honda Dealers at Risk of Bankruptcy
Severe flooding in Thailand has halted Honda production and left many local dealers facing prolonged disruption, threatening their financial survival.
Honda dealers across Thailand are facing the threat of bankruptcy after the country’s worst flooding in fifty years forced the closure of key production facilities and cut off vehicle supply. Many dealerships are reporting severe business disruption as they struggle to secure stock and maintain operations.
Floodwaters inundated two Honda plants in the Rojana Industrial Park from 6 October 2011, leaving both facilities fully submerged. Analyst Jessada Thongpak of IHS Global Automotive reported that it could take until late 2012 to rebuild and restart production at these sites. With the plants offline, dealers have been left without new vehicles to sell, compounding their financial difficulties.
Dealers struggle as supply dries up
The production halt has hit Honda’s nationwide dealer network hard. Without a steady flow of new vehicles, many dealerships are unable to meet customer demand or generate the revenue needed to cover operating costs. The uncertainty over when production will resume has left some dealers warning that bankruptcy is a real possibility if the disruption continues for months.
The floods have affected more than just Honda’s domestic operations. The company announced it would suspend production at all six of its Canadian and US assembly plants on 18 November 2011 due to parts shortages, marking the second consecutive Friday with no output. Some North American plants were able to operate above the 50 percent capacity outlined in Honda’s original slowdown plan, but the situation remained volatile.
Financial impact and uncertainty
Honda’s financial results for July to September 2011 already reflected the strain, with a 56 percent drop in quarterly profit. The company declined to issue a profit forecast for the fiscal year ending March 2012, citing the unpredictable impact of the Thai flooding. For dealers, the lack of clarity on when supply will resume has made it difficult to plan or secure additional financing.
- Flooding has killed over 500 people in Thailand since July 2011.
- Bangkok authorities expanded evacuation orders and worked to protect more industrial parks as waters threatened the city.
With the Rojana plants out of action and no immediate solution in sight, Honda dealers in Thailand remain in a precarious position. The longer the supply chain disruption lasts, the greater the risk that some businesses will not survive.
