Toyota’s warning it could rethink further investment plans in Thailand looks aimed at signaling its deep frustration over a drawn-out political crisis.
Still, Japanese carmakers are unlikely to scale back Thai operations any time soon as until recently the likes of Toyota, Nissan and Honda have said mostly that anti-government protests in Bangkok, now in their third month, were having little impact on their local bases.
“Japanese companies have continued to invest in Thailand even in the face of big floods and past political turmoil,” said a person familiar with the situation. “Regardless of what might happen with investments there, the message was an alarm bell.”
But Toyota has broken ranks, with the head of the company’s Thai subsidiary saying it may reconsider a planned investment of up to $609 million, and could even cut production, if the unrest drags on.
Auto manufacturing is Thailand’s third-largest industry, accounting for more than 10 percent of gross domestic product, with an annual output of around 2.5 million vehicles that has seen it dubbed the “Detroit of the East”.
Japanese carmakers have been investing in Thailand for decades and have come to rely on the country as an export hub. They also control around 80 percent of the Thai car market, the biggest in Southeast Asia. In the short-term Japanese car makers are unlikely to shift production elsewhere given the country’s crucial position in their global manufacturing strategy.
But the current political woes could spur carmakers to diversify their manufacturing base over the longer term and Indonesia, with roughly four times the population, is expected to surpass Thailand as the region’s biggest auto market in the next few years, and would be the most likely alternative, since Japanese automakers already make cars there and labor costs are relatively low.