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  Thailand Automotive Industry Update: 2005

Thailand's automotive industry is well on the way to solidifying its status as the Detroit of Asia.  Thailand is already the world's second largest pick-up truck market after the U.S. and ASEAN's largest automotive market and assembler.

In 2004, Thailand achieved stellar market results, which further moved it ahead of its neighbors and gained international attention.  Thailand's automotive industry produced 928,081 vehicles in 2004.  The Thai figure was 24% more than in 2003, according to the Thai Automotive Industry Association. Domestic demand grew by 17% to reach 626,026 units. Exports, accounting for one-third of production, exceeded 300,000 units, posting a 41% increase over 2003. The automotive and auto parts industry, worth 700 billion baht (USS 17.5 billion), generated the country's second highest level of export revenue last year after computer and electronic parts.  This represented approximately 12% of GDP.

The strong domestic demand can be at least partially attributed to excise tax reductions from 35% to 30% on passenger cars with engine capacities of two liters or less, estimated to represent about 70% of cars on the market. This resulted in an approximate vehicle price reduction of between 14,000 baht (USS 350) to 100,000 baht USS 2,500). More widespread credit availability also helped to boost demand.

Despite skyrocketing petroleum prices, 2005 has also been a good year for Thailand’s auto industry. The number of cars and trucks produced in Thailand from January to August increased 22 per cent on-year to 710,889 units and seems on track to exceed one million vehicles this year. Of vehicles produced so far, 38 per cent were for export according to the Federation of Thai Industries. Vehicle exports in the first eight months of 2005 rose 29 per cent to 269,512 units according to the Federation. However, output of one-ton pickup trucks, the most popular vehicle domestically and for export in Thailand because of its multi-purpose use, grew 41 per cent to 514,332 units, making up 72 per cent of total production.

The overall picture for the Thai car market still has the same players dominating, with Toyota and Isuzu claiming a combined 65% of the total vehicle market.  Isuzu and Toyota also dominate the one ton pickup market with more than 72% of the pickup market between them.  The rest is divided up between Mitsubishi, Nissan, Chevrolet, Ford and Mazda. Sales of passenger cars, which are increasingly becoming diesel powered because of petrol increases, are dominated by Toyota, which took more than 51% of the segment.  Honda is second in this segment with a 25.9% share.

Toyota plans to further expand its status as the leader in Thailand for vehicle production. Toyota, in April 2005, confirmed reports that it would spend Bt15 billion to build a pickup truck plant outside Bangkok and Bt3 billion to expand its Gateway plant in Chachoengsao. Toyota Motor Corp expects to raise local production to 550,000 units in 2007, from 350,000 this year. The new plant, whose location has yet to be chosen, will produce 100,000 Hilux pickups an-nually and employ 2,000 people by 2007.  According to Riochi Sasaki, Head of Toyota Motors Thailand, Ltd, in a late April 2005 interview: “Expansion at the Gateway plant will begin in early 2006.” Gateway will be able to produce 200,000 units per year, up from 110,000 units, when upgrades are completed and 1,500 new employees are hired.  The Gateway plant produces passenger cars such as the Soluna Vios, Corolla Altis, Camry and the Wish multipurpose vehicle.  The pickups to be produced at the new plant are part of the company’s IMV (International Innovative Multi-Purpose Vehicle) project. Toyota said its exports would increase to 250,000 units in 2007 from 150,000 units this year.  “Toyota will build a new plant for the IMV production expansion due to the high popularity in the domestic and export markets,” Saskai further noted that “The new plant will complement our truck production at Samrong. We will begin construction in 2005 and complete it in 2007,” he said.

GM, although a much smaller player in Thailand than Toyota, is also increasing production.  General Motors is investing Bt2.7 billion for a new paint shop at its Rayong plant and raise production capacity from 110,000 units per year to 160,000 units per year.  GM's expansion is to meet increased demand for Chevrolet vehicles in Thailand as well as 100 export markets around the world.  The new facility is set to open in May 2006.  Honda is also increasing its production capacity in Thailand from 100,000 cars to making 120,000 cars a year which it exports to 30 countries from its Thailand facility.  

Double digit export growth over the past few years illustrates Thailand's rising significance as a regional automotive manufacturer and supplier, as well as the benefits derived from trade agreements such as Free Trade Agreements signed with Australia, New Zealand, China and India and the market opening opportunities in Southeast Asia created by the Asia Free Trade Agreement. Several major auto manufacturers rely on their Thai operations to serve both domestic and regional demand. Toyota, Honda and Ford have or are in the process of establishing R&D Centers in Thailand.  These centers support each company global operations.  In production, Nissan has plans to export automobiles from Thailand within 3 years to 100 countries starting with 70,000 units per year.  From now on, Thailand will be Nissan’s third strategic export base after Japan with exports 650,000 Nissans a year and Mexico in second place.  Nissan, Thailand in the past has exported about 40-50,000 vehicles a year.

 
  • Click here to view Thailand Monthly Vehicle Sales - June 2005
  • Click here to view Vehicles and Parts Export in May 2005

Although most of the export growth has come from Europe, Australia and the Middle East, ASEAN is becoming a major market itself. With a population of approximately 550 million and 2003 production totaling 1.3 million vehicles, industry sources predict that an integrated ASEAN auto market could become the world's fifth largest in 2005.

Automotive trade with Australia is expected to rise due to the commencement of the Thai-Australian Free Trade Agreement that took effect on January 1, 2005.

One regional auto player who has observed Thailand’s rising status and wants to take advantage of it, particularly the many Free Trade agreements is Tata Industries, the major Indian Auto producer. Tata Motors is in the process of setting up a pick-up truck manufacturing plant in Thailand, from where it could access the ASEAN and the Chinese markets through the Free Trade Area (FTA) treaties, according to Prachuab Chaiyasan, Thai Trade Representative and also confirmed by Tata sources.  Mr. Chaiyasan said the entry of Tatas into Thailand would pave the way for other Indian auto players also to explore manufacturing opportunities in his country.

Thailand's extensive supporting network of auto parts manufacturers is a crucial advantage contributing to the industry's strength while giving Thailand an edge over competitors. In countries lacking such infrastructure, parts must be imported, contributing to vehicle costs. According to statistics from the Thai Automotive Industry Association, the country's auto parts exports were valued at 114 billion baht (US$ 2.9 billion) in 2003 and are expected to reach 200 billion baht (USS 5 billion) by 2006.

One of the biggest players in supporting the auto business in Thailand is Summit Industries. After investing more than Bt 7 billion to expand its automotive and non-automotive businesses last year, Thai Summit Group expects sales this year to grow 20 per cent to US$660 million (Bt26 billion). President Somporn Juangroongruangkit said the group spent between Bt7 billion and Bt8 billion as capital investment in 2004. Thai Summit’s expected group sales of $660 million this year will be an increase of $110 million on last year’s figure. Somporn said the group usually enjoyed a net profit margin of about 5-7 per cent, but expected margins to fall this year due to rising raw material costs and the inability to increase product prices. The group is one of Thailand’s largest and has more than 30 subsidiaries and more than 13,000 employees, with five auto-part factories in Malaysia and one in India, where it will open a second unit this year.

 

Supporting industries are extremely important in distinguishing Thailand as the leading vehicle supplier in Southeast Asia. With over 700 OEM auto parts suppliers and 1,000 in supporting industry together employing more than 217,000 workers, Thailand enjoys a reputation for having a strong supply base.

Neither the Board of Investment (BOI) of Thailand nor the Thailand Automotive Institute is resting on its laurels.  Both are actively promoting further market expansion.  The BOI is attracting high-level parts suppliers by offering 'priority activity' status to investments in identified key components. These include production of electronic fuel injection systems, molds and dies, Jigs and fixtures, anti-lock braking systems, and substrates for catalytic converters. Priority activity status confers the maximum incentives of eight-year tax holidays, duty-free machinery, and other important rights and benefits such as visa and work permit support and land ownership rights. With attractive tax benefits and facilitation services, it is hoped that Thailand will attract investments to produce the last key components missing or not sufficiently produced in Thailand.  In addition, the BOI also gives maximum incentives to activities that support the development of target sectors such as the auto industry. These activities include R&D, design activities, and human resources development. By continuing to establish their main suppliers and key parts production in Thailand, multinational auto assemblers can reduce production and logistics costs, and drive Thailand's auto sector from its leading position within ASEAN to become a major Asian production hub.

Thailand Automotive Institute (TAI) has developed an 8.7 billion baht (USS 217.5 million) plan to further cement the Kingdom’s title the "Detroit of Asia" title. The plan calls for the following five key projects:

If fully implemented, TAI Director Mr. Vallop Tiasiri believes the automotive and auto parts industry could be worth 1.3 trillion baht (US$ 32.5 billion) by 2010.

The government may broaden Thailand's automotive specialization beyond pick-up truck production to include passenger car manufacturing, with the implementation of the "Best Little Car" project.  The project is expected to result in the creation of a new segment requiring new production lines, increased sales for manufacturers and less expensive vehicles for consumers.

For the above reasons, Thailand has both the edge regionally as an auto production base and will compete strongly in the years ahead to reinforce its status as the Detroit of Asia.


About the Author:  

Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)

Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.


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