April 18, 2014 00:00 By Kon Thueanmunsaen
With the Bangkok Motor Show coming to a close, now is a good time to rethink the 2014 sales outlook for Thailand.
To provide some background, the vehicle market has not been in a normal state since 2008. Anomalies such as the global financial crisis, floods, and the introduction of the Eco-Car programme followed by the First Car Buyer scheme have left the industry with a vastly transformed landscape. Market size reached a peak of 1.4 million vehicles in 2012, doubling in size from the previous year. This number saw a slight but significant decline the following year, dropping to 1.3 million.
With the exception of December, monthly sales since July have fallen to below the 100,000 level, and have remained at an average of 92,000 vehicles. In addition to the drop, the market also went through the first two months of 2014 with sales below 70,000. Market normalisation from these anomalies alongside prolonged political unrest and a weakening economy was thought to a decrease in the market outlook.
At the beginning of 2014, the industry was quite optimistic. Around 1.1 million vehicles were expected throughout the year, attributed to the reduction in the second half of 2013 being not as bad as expected. In contrast to the general view, LMC Automotive expected total sales of below a million vehicles, considering historical data and our hypothesis that future demand for the next few years had already been pulled ahead by the First Car Buyer scheme in 2012 and the first half of 2013. Put simply, we drew a trendline from historical data since 1990, and added volume from the newly created eco-car sub-segment. Although the number should have “theoretically” been varying around 850,000, depending on different assumptions, we conservatively retained a topline of around 990,000, or a 20-per-cent decrease from 2013.
As mentioned above, actual sales decreased abruptly by around 45 per cent in the first two months of the year, prompting the Japanese Chamber of Commerce, a good representative voice of Japanese OEMs, to revise their forecast to 980,000. The seasonally adjusted annual rate from the latest sales data for February is pointing to an annual level of 882,000. But should we follow the lowering of our forecast for 2014? The answer lies in the recently concluded Bangkok International Motor Show (BIMS).
Firstly, the first two months of the year are generally a slow period before the BIMS, which is usually held towards the end of March. It is understood that buyers would rather wait for better promotions at the show. Therefore, sales data from the first two months of the year is rarely a good indicator.
Secondly, the BIMS has proved it is a misconception that anti-government protests are partly to blame for the decline in sales. The sentimental claim is built basically on the assumption that political unrest harms consumer confidence and GDP, which are vaguely tied to car sales. However, the fact is there is no evidence on the correlation between these economic indicators and vehicle sales. The primary assumption itself is actually debatable, considering recent economic growth on the back of the intensifying political crisis since the coup d’état in 2006. In fact, GDP grew 19 per cent in the following year, and car sales dropped by 7 per cent.
Total bookings from the recent BIMS decreased slightly by a mere 4 per cent, reaching 39,415 vehicles. This number would have dropped more noticeably had political tension been the main factor. One might argue that this was because the so called “Bangkok Shutdown” was confined to a small area by the end of February, and no longer obstructed access to the BIMS. Suggesting that there is a strong link between the number of visitors and bookings, however, is another misconception. While visitors to the Thailand International Motor Expo, a similar event held during the very climax of anti-government protests in December, fell by 17 per cent, there was a considerable decrease of 52 per cent for new orders. In contrast, December recorded a peak in sales at more than 109,000.
All this evidence alongside segment analysis points to a sole and simple reason behind the sharp reduction: market adjustment following exceptionally high sales in 2012-13, driven by the First Car scheme. Although year-to-date sales have decreased in all segments, the share of the sub-compact car, the main beneficiary of the special purchasing programme, dropped most significantly by more than 7 per cent.
In other words, it is an unproven claim that the worsening political situation had anything to do with the sharp reduction in the first two months of 2014. It would also be premature to revise the projection if the factor of market adjustment has already been included in the analysis.
Kon Thueanmunsaen is a senior analyst at Asean LMC Automotive. He can be contacted at Konjanart@lmc-auto.com.