Signs of industry recovering

Auto & Audio February 02, 2012 00:00

By Kanittha Panthong
The Nation

4,359 Viewed

After sustaining heavy blows in 2011, the automobile industry finished the year at 794,000 units, which is about 100,000 units below the original target.

While the Japanese quake and tsunami in March temporarily halted Thai auto production due to parts disruption, it was Thailand’s flood crisis that delivered the knockout punch as major auto producers had to cease production for months. Although Honda was the only manufacturer to suffer from severe flooding, other makers also had to halt production due to a shortage of parts as a large number of important suppliers located in Ayutthaya were submerged under water.

However, just three weeks into 2012, there are signs of prosperity once again as Toyota, the largest auto-maker in the country, announced its mid-term investment plan worth almost Bt10 billion that will help the company reach a production figure of 760,000 units per year. Toyota Motor Thailand (TMT) president Kyoichi Tanada said Toyota expects the auto market to sell as much as 1.1 million units in 2012.
But the point is not only Toyota’s investment announcement. Considering its size, whenever a company as large as Toyota moves, it creates big waves, and it usually is an important turning point for the industry as well. But Toyota is not the only company that has announced its future plans.
Others including Honda, Mazda, Ford, General Motors and Tata see the Asean region as an important mechanism to success, and all came out to announce their business plans.
There are presently 11 auto brands that offer models that are imported via the AFTA – Peugeot, Toyota (Avanza and Innova from Indonesia), Proton (every model from Malaysia), Ford (Focus and Escape from the Philippines), Honda (Freed from Indonesia), Naza (every model from Malaysia), Suzuki (Swift from Malaysia), Nissan (X-Trail from Malaysia), Kia (Picanto from Malaysia) and Volvo (S60 from Malaysia).
As Asean nations move closer to establishing a complete Asean Economic Community (AEC) in 2015, three years may seem long for the average consumer. But for the government and private sector, this is a long-term plan that has been designed to cater to the highly challenging future for member nations.
Back in 2006, then director of the Department of Industrial Economics Achaka Brimble (presently secretary-general of the Board of Investment) participated in the 9th AMEICC Working Group on Automotive Industry in Vientiane, Laos. She said the meeting was a stage for the government and those in the automotive industry to meet and discuss possibilities of raising the economic capability of member nations.
Interestingly, it reflected industrial cooperation between Japan and Asean, and it was agreed that help would be given to the four new Asean members comprising Laos, Cambodia, Burma and Vietnam.
At the time, Fujio Cho, who was Toyota chairman and president of JAMA (Japan Automobile Manufacturers Association), was also present at the meeting, and his presence raised questions on how would Japan, as a major auto-producing nation, make its move in Asia, particularly in the Asean region.
At the meeting, guest speakers talked on the subject of “Growing Economic Partnership in East Asia and the Direction of Cooperation between Japan and the Asean Automobile Industry”, which was about economic partnership agreements and free-trade agreements.
Participants were delegates from Asean and six high-potential countries – China, India, South Korea, Australia, New Zealand and Japan. The “Asean+6” group, if joined together, would create a market of 20 million vehicles per year, or 30 per cent of the global market.
This means that although Asean may not be as large as major markets like China or Japan, it still has much room for growth and would prosper if the right economic network is built. 
Thailand Automotive Institute (TAI) director Wallop Tiasiri said that Asean auto sales are expected to reach only 3 million units when the AEC is launched in the next three years.
“Various global factors are not so favourable and many countries, including the US and Europe, are facing economic problems; these factors will affect Asia and Asean,” he said.
He said that Asean, as one of the global auto production and export bases, and particularly Thailand, must learn to accept the changing global situation.
“But even so a bright future awaits,” Wallop said. 
In terms of investment, the Asean region is a region in which various industries including automobiles have invested heavily.
“And more than half of the investment landed in Thailand during the last 50 years, when the Thai automobile industry was born. Thailand is the strongest nation in Asean considering government policy, personnel, capital as well as its supply chain, ranging from first tier to third tier with more than 2,500 factories,” he said.
Wallop said Thailand has more than one champion product. “Apart from 1-tonne pickup trucks, we also have the Eco-Car that saw the first model being launched in March 2010, and consumer response is increasing as we speak,” he said.
According to Wallop, auto production is expected to reach 2 million units, with 1.1 million being for the domestic market and 900,000 for export. “This is two-thirds of auto production in Asean. Although Indonesia has announced that it is stepping up to become the leader in Asean after overtaking us last year, it was due to the natural disaster in Thailand. In general, Thailand has a bigger advantage and investment analysts know this,” he said.
Wallop said that free trade in this region will expand. “From the Asean region, we have become Asean plus 6 with countries like Australia, Japan and Korea. Leading manufacturers have chosen to set up manufacturing bases in China, India and Asean. Most of these manufacturing bases are in Thailand, since Japanese companies face high labour costs and had relocated to Thailand where costs are lower. Thailand also has all the utilities needed for producing and exporting automobiles and auto parts to the global market,” he said. 
But problems and obstacles still persist, he pointed out.
“Malaysia has a national car programme that owns up to 70 per cent of the market in Malaysia. Thus it is natural for Malaysia to have trade barriers. The measure that creates the most effects is the limitation of foreign auto imports. People who want to import vehicles to Malaysia must apply for a permit, and in order to obtain it they must pay bribes of as much as Bt300,000 per vehicle,” he revealed.
Proton and Perodua vehicles are priced from just Bt350,000 to Bt1 million. “All these measures directly affect Thailand, which also wants to enter the Malaysian market. So if all these non-tarriff barriers are still present, it would not benefit the Asean market,” he said. 
Toyota is the company that will be closely followed once the AEC starts in 2015, since it has the largest amount of investment in the Asia-Pacific and has more than 50 per cent of market share in Asean.
If there are no surprises, Toyota will achieve 1-million-units-per-year production in Thailand. TMT president Tanada announced the target back in 2010 and recently announced a Bt8.2-billion investment plan to expand production at the Gateway plant and resume production at the Thai Auto Works factory. Capacity at the two plants will be 88,000 units, allowing Toyota to have a combined production capacity of 760,000 units in 2013.
The new Gateway plant will start operation in July next year and will produce Toyota’s eco-car, which will be launched in 2013. A high-ranking officer from Toyota said that Thailand is Toyota’s strategic production centre and the country still has much potential for growth. The Banpho plant has 1,500 rai of unused land and the Gateway plant can also be expanded. Despite the recent investment announcement for Gateway, it is highly possible that Toyota will purchase more land for many other projects. Although the price of land is high, it still is a wise investment for the future. This means that Toyota’s total production in Thailand will reach 1 million units within the next three years for sure,” he said.
Meanwhile, TMT senior vice president Wichien Emprasertsuk said Toyota is not only considering the Asean market of 600 million people. “For the future, we have a clearer picture when we look at the whole Asia-Pacific region. Toyota Motor has already created an Asia-Pacific plan which consists of Asean, Australia and New Zealand, not including India where Toyota has just entered, or China, which is very large in size. This year, the Asia-Pacific market should reach 4 million to 5 million units and until 2015 the market should grow by an average of 10-20 per cent per year,” he said.
Toyota will launch its eco-car in 2013, and the project is part of its Small Global Car project for Asean, the Asia-Pacific, China and India. This will help the company minimize production costs and be able to sell the car at competitive prices. 
According to the Toyota source, many think that the company’s eco-car will be based on the Etios model that was launched in India last year.
“Many also think that the Toyota eco-car will be a 5-door hatchback, which is as large as the Yaris subcompact, powered by a 1.2-litre engine co-developed with Daihatsu. There will be 5-speed manual and CVT (Continuously Variable Transmission) choices and electric power steering. It will also be built on the same platform as the next-generation Vios subcompact, which means that both models will share engineering costs. Right now the design stage is almost completed and if nothing goes wrong then everything will go as planned, otherwise Toyota would not have made the announcement,” the source said.
Apart from the IMV project which uses Thailand as the global production centre, Toyota’s eco-car will be another model that will help drive the Asean market, and possibly that of Australia, which has been placing more importance on small and fuel-efficient cars, he added. 
Honda is another brand that has a big role in Asean, with a market share of 8-10 per cent, according to JD Power and Associates.
Honda plans to export vehicles under the AFTA, with import duties between Thailand and Indonesia having been lifted along with other countries including the Philipines and Japan, while the agreement with Vietnam is being formulated. Asian Honda Motor president and CEO Hiroshi Kobayashi said before the Thai flood crisis that Honda initially planned to export a smuch as Bt90 billion worth of vehicles from Thailand, a decrease of 7 per cent. The company is expected to make an announcement on its plan in the near future. In the first half of 2011, Hodna exported Bt20.2 billion worth of vehicles, down 37 per cent compared to the same period in 2010. Of these, 17,441 were passenger cars worth Bt8.5 billion, down 52 per cent due to parts disruption caused by the tsunami in Japan.
Honda exported five models – the City, Jazz, Civic, Accord and CR-V – to more than 30 countries.
During the first six months of 2011, Honda exported 2,430 units of the City subcompact to Mexico and Bt11.7 billion worth of parts, down 16 per cent. Important parts markets for Honda include Asean, India, Pakistan, Taiwan, China, Turkey and Brazil.
Ford Asean president Peter Fleet said the AutoAlliance plant has resumed production and has a capacity of 275,000 units per year. Meanwhile, the new Ford plant will start production of the new Focus this year as well.
This will make Ford the auto-maker with the second-largest investment in Thailand. The company has already invested US$2.5 billion (Bt77.42 billion) in the kingdom, not including additional investments by parts suppliers.
A Ford executive said the first of eight new vehicles by Ford – the Ranger pickup – has already been launched and will be followed by the Focus. Ford will cease production of the Focus in the Philippines in the near future while maintaining production of the Escape SUV. Meanwhile, another model that Ford will produce in Thailand is the EcoSport compact crossover that is based on the Fiesta platform. It will be launched in 2015 as announced by Ford Motor president Alan Mullaly at the Auto Expo in New Delhi last month.
Mazda, meanwhile, said the Asean Era is about to arrive, and Thailand will be the centre and an important market for the region. Mazda executives say that Thailand could become fifth most important market for Mazda in the world, up from its present position of sixth.
Mazda executive officer Masahiro Moro said the US is Mazda’s largest market followed by Japan, Australia, Canada and Thailand. This means that Mazda must plan in order to cater for growth in the Asean region, which could double in size in the future.
Although other brands have not come out to announce their stand concerning the Asean auto community, each is busy preparing for the future.
It would be interesting to see how the AEC will take off, and although the “Big 5” in the Asean community have already lowered import duty for vehicles to 0 per cent, it is expected to heat up the Asean market dramatically.