Honda will cut N.A. production because of Thai floods
Redesigned CR-V may be delayed
LOS ANGELES -- Honda Motor Co. will sharply reduce North American production in November because floods in Thailand have disrupted parts supplies.
Honda will cut its North American output by 50 percent, starting Wednesday. All six North American plants will be affected through Nov. 10, Honda said today in a statement. The factories also will not build vehicles on Nov. 11. All Saturday overtime is canceled through November.
Production likely will be affected for at least "the next several weeks," Honda said. More cuts could be announced later. In addition, the December on-sale date of the redesigned 2012 Honda CR-V may be delayed by several weeks.
The moves further set back Honda in its attempt to recover from the March earthquake in Japan. U.S. sales chief John Mendel has projected that Honda would post a sales gain for October, its first monthly increase since April, as plants returned to full speed. American Honda's U.S. sales were down 6 percent through September in a market that gained 10 percent.
In a letter to dealers sent today, Mendel wrote that some Honda suppliers in Asia are "currently unable to maintain parts production and I regret to inform you that this will affect North American production of vehicles from November through mid- to late-December.
"We expect to resume normal production levels in mid- to late-December. Your planned production for November will be spread out between November, December and perhaps January depending upon our recovery efforts.
"In addition, the planned production for December will be built in January 2012. Unlike the initial situation following the earthquake and tsunami in Japan when we were uncertain about its duration, we are confident about the finite time frame regarding the production disruption that will result from the situation in Thailand," Mendel wrote.
Although between 80 and 90 percent of Honda and Acura automobiles sold in the United States are built in North America, a crucial few parts -- mostly electronics -- are produced overseas. That was made clear in the wake of the March earthquake in Japan, which crippled Honda's North American production due to missing parts.
Honda has confirmed analyst reports that its North American manufacturing base was the most affected of any Japanese automaker's in the wake of the earthquake.
Inventories still low
While Honda was getting back on track with its North American production this month, dealer inventories were still unusually low. Group 1 Automotive Inc., the fourth-largest U.S. dealership group based on new-vehicle retail sales, reported last week that it had about a 25-day supply of Honda vehicles, well below the 50 to 60 days considered typical.
Nonproduction days will continue to be treated as "no pay, no penalty," meaning Honda employees can report to work, use a vacation day, or take the day off without compensation or penalty.
Earlier today, Honda reported a plunge in quarterly profits, and CFO Fumihiko Ike said the automaker pulled its full-year earnings guidance because of the disruptions triggered by the Thai floods.
For the July-September second quarter, Honda posted a 68 percent drop in operating profit to 52.5 billion yen ($693 million), due mainly to a 14 percent plunge in car sales from an earthquake-caused shortage of microchip controllers from Renesas Electronics Corp. That was worse than a consensus estimate of 63.5 billion yen from a Reuters survey of 13 analysts.
Net profit fell 55.5 percent to 60.43 billion yen, hammered by an 8-yen drop in the dollar from the year before. Second-quarter revenues fell 16 percent to 1.9 trillion yen.
The new supply chain disruptions come just as Honda and other Japanese automakers try to return to full production in the wake of the March 11 earthquake. Toyota has already canceled overtime shifts in the United States and elsewhere, citing parts shortages from the Thai floods.
The inability of Honda and Toyota to keep up with surging U.S. demand is one reason their sales are down for the year.
About 35 of Honda's Tier 1 suppliers in Thailand have been hit by the floods spurring the parts shortages, Honda CFO Fumihiko Ike said earlier today in Japan. They supply parts for such cars as the Civic and City that are made in Thailand and other countries. Makers of small electronics components are among the worst hit.
At the same time, Honda's assembly plant in Ayutthaya has been under water and offline since Oct. 8. It is expected to take at least a month for those waters to recede and possibly another couple months to repair the damaged facilities, Ike said. But an exact timeline is still unclear.
"We have sent boats into the plant and taken video," Ike said. But until the water is completely drained and the machinery can be inspected thoroughly, it is impossible to plan a restart.
Ike said it was still too soon to tell what the full impact would be.
The flooding was likely to keep Honda's Thai factory shut for up to six months -- affecting 3 percent of the company's global output, Japan's Nikkei business daily reported earlier.
Bloomberg and Reuters contributed to this report.
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