Thailand: Detroit of Asia: Thailand's automotive industry plans to leverage

its competitive advantages to achieve a top10 world automotive manufacturing ranking by 2010
 (BOI Investment Review, March 2005)  -  by Susan Crawford

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Already the world’s second largest pick-up truck market and ASEAN’s largest automotive market and assembler, Thailand moved closer to realizing “Detroit of Asia” status with unexpectedly strong 2004 market results. Thailand’s automotive industry exceeded expectations by manufacturing 928,081 vehicles in 2004, 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 (US$ 17.5 billion), generated the country’s second highest level of export revenue last year after computer and electronic parts, representing 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 (US$ 350) to 100,000 baht (US$ 2,500). More widespread credit availability also helped to boost demand.

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. Several major auto manufacturers rely on their Thai operations to serve both domestic and regional demand, and while 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.

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 (US$ 5 billion) by 2006.

The supporting infrastructure is important for enabling Thailand to boost automotive production to meet this year’s goal of 1.1 million units, an 18% expansion over 2004, and achieve the manufacturing target of 1.8 million units by 2010.

Thailand Automotive Institute (TAI) has developed an 8.7 billion baht (US$ 217.5 million) plan to set the Kingdom on the road to achieving the 1.8 million production goal and fulfilling the “Detroit of Asia” aspiration. The proposal consists of the following five key projects:

• A 1.5 billion baht (US$ 37.5 million) human resources development program
• A 500 million baht (US$ 12.5 million) automotive experts dispatching program to establish clusters and upgrade auto parts manufacturing technology
• A 6 billion baht (US$ 150 million) fund for the establishment of research and development centers - 1.5 billion baht (US$ 37.5 million) for auto parts testing centers and 4.5 billion baht (US$ 112.5 million) for car-testing tracks
• A 500 million baht (US$ 12.5 million) information technology center to analyze industry trends
• A 200 million baht (US$ 5 million) automobile export promotion center 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.