THAILAND STUCK IN REVERSE:
Thailand has become one of the world’s largest production bases for pickup trucks, thanks to robust domestic demand, growing exports and favourable government tax incentives.
But recently, automakers have begun to lay off temporary workers and cut output amid weaker demand at home, saying the downturn has lasted longer than expected with no recovery in sight yet.
The downturn “has lasted longer than expected”, said Piengjai Kaewsuwan, vice-president for government affairs at Nissan Motor (Thailand) and chairwoman of the Asean Automotive Federation (AAF). Her company has a backlog of cars waiting to be sold.
“Last year, for instance, domestic sales (industrywide) slipped below 900,000 units, compared to the original forecast of 1.1 million, meaning there was an oversupply of about 300,000 units. Every automaker has to adjust to cope with the current unfavourable environment,” she added.
Japan’s second largest automaker employs about 7,000 people in Thailand and is trying to keep all of them, especially production workers given the investment it has made in training.
While exports are performing well, domestic demand is poor as consumers are worried about future income and high debt. Sales of commercial vehicles have been hurt by declining crop prices that lowered farmers’ income, said Ms Piengjai.
The weak outlook has also prompted General Motors to stop making passenger cars at its Rayong plant and focus on pickups and SUVs, and to pull out of the government-backed Eco Car programme.
According to the Federation of Thai Industries (FTI), Thailand’s total car output fell 23.5% last year to 1.88 million units, well below the target of 2.1 million. Exports were flat at 1.2 million units.
Vehicle sales reached 1.45 million units in 2012, spurred by the first-time car buyer programme of the former Yingluck Shinawatra administration. Sales in 2013 fell to 1.33 million, including a large first-car order backlog, so a downturn in 2014 was expected to some extent.
Suparat Sirisuwannangkura, chairman of the FTI’s Automotive Industry Club, said some companies had started to let go of temporary staff whose contracts had expired. But they would return once demand picks up, said Mr Suparat, a senior vice-president of Toyota Motor Thailand (TMT).
Market leader TMT reported a sales drop of as 23.4% in January to 20,094 units. “This year, total domestic sales are projected at 930,000 but actual figures showed monthly volumes in January and February were not in line with targets. Now there is the possibility that this year’s target might not be achieved,” said Mr Suparat.
The FTI reported that January car sales fell 12.9% year-on-year and 33.3% month-on-month to 59,669 units. Vehicle output, however, rose 2.2% year-on-year and 8.2% from December to 166,260 units, as exports increased by 14.1% from a year earlier to 92,440 vehicles. The club has maintained its export target at 1.2 million units for 2015.
While all Japanese automakers remain committed to phase 2 of the Eco Car programme, Mr Suparat said prospective newcomers may follow GM’s lead and stay out.
Despite the current slowdown, analysts say Thailand will remain the largest automotive hub in Asean in the near term.
It will take many years f or second-ranked Indonesia to develop its technology, infrastructure and capability to meet global standards, said Jessada Thongpak, senior analyst at IHS Automotive, a specialist in light vehicle production in Asean.
Thailand produces a wide variety of vehicles and has well-established export markets all over the world. In Indonesia, most demand is domestic, driven by lowcost green cars (LCGC) and multi-purpose vehicles (MPVs).
“Production in Thailand is aimed at both domestic consumption and exports. The product portfolio here is much greater than that in Indonesia where over 85% of the market is dominated by MPVs and LCGCs,” said Mr Jessada.
The Eco Car programme launched in 2010 has helped transform the Thai industry from one focused mainly on pickup trucks to a global small passenger car production base, helped by incentives to global automakers and local suppliers, he noted.
“Still, there is big room for domestic demand in Thailand to grow. If the government supports urbanisation and infrastructure development, as well as creating job opportunities and a broader mass of the consumers with more stable income, a higher number of people will buy cars,” Mr Jessada said.
Next year, the Thai government plans to introduce an emissions excise tax. “It will be a challenge for car manufacturers to develop models that will serve needs of the market while keeping the emissions low,” he said.
Car penetration in Thailand was 186 in 1,000 people last year, compared with 336 in Malaysia, 52 in Indonesia, 33 in the Philippines and 15 in Vietnam. By 2021, the Thailand-based consultancy LMC Automotive expects the ratio will reach 258 in Thailand, 371 in Malaysia, 77 in Indonesia, 41 in the Philippines and 25 in Vietnam.
In any case, Thailand’s status as a production hub appears secure for now.
“It will be extremely costly for automakers in Thailand to move elsewhere,” said Mr Jessada.
He said industry policy in the Philippines and Vietnam was still unclear while Malaysia’s National Automotive Policy (NAP) and Efficient Energy Vehicle (EEV) programme announced last year were considered “too ambitious”.
“Thailand and Indonesia will continue to be the two most lucrative production bases for the automotive industry,” he said.