Wall carries the weight
GM’s exit from the Thai auto industry comes as China is investing heavily in manufacturing regionally, writes Piyachart Maikaew
Although General Motors’ business here was not a market leader, Thailand was an important production hub for pickups, a segment in which the country ranks fifth globally for manufacturing. GM’s Feb 17 announcement that it would cease its Thai market operations and sell the Rayong plants has shaken the automotive sector in several dimensions. From sales, production, exports and auto supply chains to auto loans, car insurance and the used-car market, the aftermath of the exit remains unresolved.
And while Chevrolet Thailand, the local distribution arm of GM, has committed to provide maintenance and after-sale services, including genuine spare parts for all existing buyers, it cannot clarify the duration that Thai customers will continue receiving these services.
The local distributor has yet to cease services and warranties, but new car sales are going to end by 2020.
The buyer of GM’s factories is Chinese car maker Great Wall Motors.
Great Wall previously announced a US$300-million investment plan in 2013 to set up a production plant for SUVs in Thailand. But the plan was put off in 2014 because of political turmoil and an economic downturn in Thailand.
Surapong Paisitpatanapong, a spokesman for the automotive industry club of the Federation of Thai Industries, said the country’s automotive production will not be affected by GM’s exit, as the capacity will soon be replaced by Great Wall.
GM had two manufacturing lines at Rayong’s WHA Eastern Seaboard Industrial Estate — a vehicle assembly plant under GM Thailand with annual production capacity for 180,000 units and an engine plant under GM Powertrain Thailand with annual capacity for 120,000 units — for a combined investment of $1.4 billion.
These assets were sold to Great Wall, with a plan to complete the deal by year-end 2020.
“The entrance of Chinese car brands will create another option for Thai buyers to buy cheaper vehicles, similar to the success of MG cars the past several years in selling mid-sized SUVs,” Mr Surapong said. “The club has an optimistic outlook for this deal, with hopes that the newcomers from China are a good sign for the Thai car market.”
He said Great Wall is a strong car manufacturer in China with over 1 million cars sold annually, so its entry into Thailand will help with production of passenger cars, pickups and electric vehicles (EVs), in line with government support.
“It is a win-win situation,” Mr Surapong said.
Industry Minister Suriya Jungrungreangkit said the entrance of Great Wall will ensure that Thailand remains a vehicle production hub for Asia in the long run.
Great Wall plans to make roughly 100,000 vehicles a year in the initial stage, while GM made 50,000 vehicles a year, Mr Suriya said.
“Great Wall met with ministry officials for this investment earlier and vowed to produce pickups, SUVs and EVs locally,” he said. “About 50% of Great Wall’s output is for export. The ministry expects Great Wall to begin production in the first quarter of 2022.”
CHINESE PENETRATION
China has many car brands locally and has become the world’s largest automobile production destination since 2009, its 13.8 million cars surpassing Japan’s 7.93 million cars for the period.
According to the International Organization of Motor Vehicle Manufacturers, China made 27.8 million cars and ranked as the world’s largest producer in 2018, while the US was second with 11.3 million.
In 2018, Thailand ranked 11th with 2.17 million vehicles.
Chinese brands began penetrating Thailand’s car market through import volume in 2009. Chery subcompact cars were imported and distributed locally by Yontrakit Group and cost roughly 400,000 baht per vehicle.
But completely built-up imports in Thailand are subject to an 80% import duty of declared price, while completely knocked-down kits for local assembly have a 30% import duty.
The Chery brand did not sell well despite offering attractive prices because Yontrakit’s after-sale services were below Thai buyers’ expectations and several of the vehicles had aftersale problems.
Chery had to compete with Japanese brands, which joined the government’s eco-car scheme in that period and offered reasonable prices and stronger after-sale networks.
In 2012, SAIC Motor and Thai conglomerate Charoen Pokphand Group announced they were forming a 51:49 joint venture to produce cars in Thailand for local sales and export of righthand-drive cars.
The venture began production of MG cars in mid-2014. The MG brand originated in Britain, then collapsed in 2005.
Shanghai-based SAIC Motor acquired Nanjing Automobile, the owner of the MG plant in Britain, in 2007.
MG sold only 300 cars in Thailand in 2014. In 2015, sales grew to 3,778 cars, then surged to 8,319 units in 2016.
In 2017, 12,013 cars were sold, then 23,740 in 2018.
A total of 25,516 MG cars sold in 2019, up 11.7%, compared with an overall Thai car market that shrank 3.3% for the period to 1,007,552 cars.
The MG brand ranked eighth by local sales volume in 2019, surpassing Japan’s Suzuki.
MG has 125 distributors and service centres nationwide to support registered cars locally.
SAIC Motor-CP began exporting MG ZS SUVs to Indonesia for the first time earlier this year.
Titikorn Lertsirirungsun, manager for Southeast Asia at research firm LMC Automotive, said the MG brand has become successful and competitive enough to expand its car distribution in Southeast Asia.
“At this time, MG can enter other markets after having satisfactory sales in Thailand,” he said. “The MG distributor in Indonesia has imported cars from Thailand. The brand has appointed the distributor in the Philippines, also selling Chevrolet cars. It has begun to import MG cars directly from China since 2019 and achieved good sales.”
If SAIC Motor-CP has the right to distribute MG cars in other countries in the region, it will use the production facility in Chon Buri province to oversee future exports, Mr Titikorn said.
CP JOINT VENTURES
Mr Titikorn said other brands trying to enter Southeast Asia include Wuling, which is keen on the Indonesian market, and Geely through its ownership of
Proton in Malaysia.
Wuling has partnered with SAIC and GM to develop compact SUVs for the Baojun, Wuling and Chevrolet nameplates.
Under the same SUV platform, Chevrolet Captiva is for Thailand, Wuling Almaz is for Indonesia and Baojun 530 is for China.
In April 2019, CP Group and China’s Foton Motor Group set up a joint venture in Thailand to make all vehicles types under an investment of 500 million baht.
The joint venture will oversee production, sales and marketing of locally assembled vehicles in Thailand and Southeast Asia, resulting in CP running two Chinese vehicle brands in Thailand.
The Foton brand has tried to enter Thailand for the past several years. The first step was to name a local authorised distributor and assembler, United Motors Co.
Foton then took charge of all local administration from United Motors in late 2016 and hired Bangchan General Assembly Co to make Foton’s pickups and passenger cars. United Motors took production responsibility for big trucks.
Still, Foton has had limited sales volume for pickups and big trucks amid aggressive competition in the local market, led by Japanese brands.
On this issue, Mr Titikorn said Thailand’s pickup truck segment is different from the passenger car market. Buyers place a high level of trust in the brand’s reputation and word-ofmouth recommendations.
“If Great Wall begins sales locally, the SUV segment will be the first choice — the Haval family that will be introduced in India,” he said.
Before the GM deal in Rayong was announced, Great Wall had said in January that it was buying the GM plant in India.
“Sustainable sales for each car distributor will depend on the quality of after-sale services for customers,” Mr Titikorn said. “Operating the factories in Thailand provides more support that the brand is reliable.”
EV POSSIBILITY
The Thai-Asean free trade agreement allows the import of battery EVs with a 0% import duty, which is attractive for many Chinese brands. The retail price tags of EVs should be lower than cheap cars with combustion engines if they avoid the 80% import duty.
Chinese car makers have not yet made a huge investment in EVs in Thailand.
SAIC Motor-CP has sold MG ZS EVs locally since mid-2019. The car is imported directly from Shanghai with a price tag of 1.19 million baht.
SAIC Motor-CP also applied for Board of Investment (BoI) incentives to produce battery EVs in Chon Buri with a project value of 1.29 billion baht, but the company has yet to announce the project’s time frame.
Battery EVs from Japan are subject to a 20% import duty under the JapanThailand Economic Partnership Agreement, putting the local price tag of the Nissan Leaf at 1.9 million baht.
Mr Titikorn said the BoI talked with other car makers after the EV scheme application period expired in 2018.
“We are not sure whether Great Wall applied for EV incentives within the application period, but the BoI would provide appropriate privileges to car makers that are interested in investing in EV production in Thailand,” he said,
“though the incentives would not equal those given to other applicants under the EV scheme.”
According to the BoI, Chinese maker Skywell was granted EV incentives with a project value of 200 million baht for assembly of multi-purpose vehicles, vans, minibuses and mid-size trucks.
The EV scheme offers many privileges for applicants, such as a three-year exemption from excise tax; a 0% import duty for EVs in the first three years; and a corporate tax holiday of 5-8 years.
“These privileges are attractive for supply-side [manufacturers], but Thailand does not provide incentives for the demand side to attract buyers,” Mr Titikorn said.
In any case, the EV market in Thailand is poised to heat up with Great Wall’s entry, as the company is known for production of plug-in hybrid EVs and pure battery EVs, said Wanna Yongpisanphob, an analyst at Krungsri Research.
Great Wall has likely already applied for BoI incentives because it plans to jump-start production next year, Ms Wanna said.
But Surachai Pramualcharoenkit, an analyst at Maybank Kim Eng Securities Thailand, has a different view of the Thai EV market, saying limited changes will take place over the next 3-5 years because prices and the supply chain of auto parts are still bottleneck issues.
“It has to be monitored further to see what Great Wall’s production will look like, to assess whether the company views Thailand as a production base for local sales and export,” Mr Surachai said.
‘‘ Limited changes will take place over the next 3-5 years in the Thai EV market because prices and the supply chain of auto parts are still bottleneck issues. SURACHAI PRAMUALCHAROENKIT
Analyst, Maybank Kim Eng Securities Thailand