Cars pile up in the Philippines

New cars in the Philippines

This is not a reference to a crash on Asian roads, but the fact that the whole Asian car industry has been thrown into chaos by the floods in Thailand.

On the one hand, finished cars are sitting on the dockside in Manila as the photograph shows, but on the other hand factories in the Philippines are having production delays because they cannot get the right components from Thailand.
In this globalised world, virtually no car is built entirely in one country, so production depends on all factories in all countries working seamlessly. As the Japanese earthquake showed, the most obscure factory can turn out to be the sole supplier of one vital part – in Japan's case it was a single supplier of electronic control systems that threatened to bring the global car industry to a shuddering halt.

Now the Philippines has seen a 27.4% drop in export earnings from the car industry for the month of September. The whole car industry is now rethinking its approach to production. The lowest cost factory for every single part is all very well, but if it leads to production cutbacks every time there is a natural disaster, those clever supply chains start to look a lot less clever.

With most climate change experts saying that extreme weather events are likely to become more common, the industry is having to give serious thought to consolidating parts suppliers. Sean McAlinden, chief economist for the Center for Automotive Research, said that an example of the problem was building "regional cars with global parts". Hence a Toyota made in Europe, and only sold in Europe, could use parts that come only from Japan.

One possible outcome could be sourcing more parts on a regional basis: European parts for European cars, so to speak. Even western manufacturers have discovered that some of their components come only from one country on the other side of the world. Who knows- earthquake and tsunami-free Britain could suddenly look quite attractive to parts long as we don't get the wrong kind of snow.
Read Full Story