Despite the Thailand’s on-going political turmoil, most automakers would remain investing in the country, being the hub for not only southeast Asia but also Japan. It is unlikely that automakers to make a short-term relocation even to their next automotive manufacturing hub in Indonesia.

However, in a longer term, it might be a question that rings the alarm if the Thai’s political turmoil persists.

In Tokyo, Toyota Motor Corp’s warning it could rethink further investment plans in Thailand looks aimed at signaling its deep frustration over a drawn-out political crisis, but Japanese car makers are unlikely to scale back Thai operations any time soon.

Until recently the likes of Toyota, Nissan Motor Co and Honda Motor Co have said mostly that anti-government protests in Bangkok, now in their third month, were having little impact on their local bases.

But Toyota has broken ranks, with the head of the company’s Thai subsidiary saying on Monday it may reconsider a planned investment of up to $609 million, and could even cut production, if the unrest drags on.

“Japanese companies have continued to invest in Thailand even in the face of big floods and past political turmoil,” a person familiar with the situation said on Tuesday.

“Regardless of what might happen with investments there, the message was an alarm bell.”

The Thai government said on Tuesday it would impose a 60-day state of emergency in Bangkok and surrounding provinces as it attempts to contain a protest movement that has blockaded parts of the capital and is seeking the resignation of Prime Minister Yingluck Shinawatra.

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 car makers 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.

EXPORT HUB

Toyota makes about one-in-10 of its cars in Thailand and plans to invest around 20 billion baht ($609 million) to boost annual capacity by 200,000 vehicles over the next three or four years, to 1 million vehicles.

Nissan and Mitsubishi Motors Corp have each positioned Thailand as a hub to manufacture small cars, exporting them not only to neighboring countries in Southeast Asia but also to Japan.

But the current political woes could spur car makers to diversify their manufacturing base over the longer term, said Shingo Ikeda, a principal at Roland Berger Strategy Consultants, Southeast Asia.

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.

“Unlike in the past when it was single-handedly dependent on Thailand, Toyota has more leeway to shift to Indonesia the production capacity that it plans to add to Thailand,” said Ryuichiro Inoue, a professor at Tokyo City University and an auto industry expert.

For example, Toyota theoretically could shift production of its multi-purpose vehicle series called IMV, developed as global models with similar structure and parts, from Thailand to Indonesia relatively easily.

But any such shift would not happen quickly. Given the hefty investments that car makers have made into Thailand, the country will remain a dominant manufacturing site for the time being, helped by a strong supplier network and highly trained workers.

For now, Japanese car makers other than Toyota say they will be sticking with their investment plans in Thailand.

“There is no change in our stance of continuing to position Thailand as one of our key overseas manufacturing sites,” Mazda spokeswoman Misato Kobayashi said.

Nissan is investing 11 billion Thai baht ($335 million) in its second Thai plant, which will start operating by end-March. Honda is also building a second car plant there with an investment of 17.2 billion baht and a start-up target of 2015. Mazda is building a $250 million transmission plant.

Source: Reuter, Chicago Tribune, decisionAsia