Thailand’s resilient automotive industry sees 2012 as a turnaround year of explosive growth and vibrant innovation. Rebounding robustly from last year’s flood crisis, manufacturers are confirming their confidence in the country as a leading global production hub. New investments are springing up and the domestic sales market sizzles with invigorated demand, including heightened interest in eco-cars.
All automakers in Thailand have now restarted production after the country’s worst flooding in half a century disrupted supply lines back in October and November 2011. Even the hardest-hit producer, Honda, was able to restart operations a few weeks ago on 28 March. The rapid recovery by the Thai automotive industry will translate into a boom in production, sales and investment this year.
The expected upsurge was already being seen at the start of the year. Chevrolet began 2012 with great momentum as its vehicle sales in January were nearly double those of the same month of last year. With factories coming back online, Thailand’s total vehicle output in February also increased 11.6% year-on-year.
Extensive efforts have been made by the Thai government to maintain investor confidence in the country as an excellent production hub. A 350 billion baht long-term plan for managing Thailand’s river basins is being hammered out so that industrial estates and economic areas will be protected from any future flooding. Prime Minister Yingluck Shinawatra emphasized Thailand’s flood-prevention readiness on overseas trips in January 2012 to the World Economic Forum in Davos, Switzerland, and in March on roadshows to Japan and South Korea.
Following such positive declarations by the government, companies have confirmed their intention to both maintain existing projects and launch new ones in Thailand. Among these, Honda has announced that it will be pouring 12 billion baht into new facilities. Isuzu is investing 6.5 billion baht to expand its production capacity of pickup trucks this year. Toyota will spend 6 billion baht to boost production capacity of the petrol engines used in its Corolla ZR. Thai Summit, one of the country’s largest auto parts makers, is allocating 5 billion to expand its factories in Chonburi and Rayong provinces.
All of this follows other major investments in Thailand’s automotive industry over the past couple of years, when Mitsubishi allocated US$500 million for an eco-car plant in Chonburi, Ford launched construction of a US$450 million state-of-the-art plant in Rayong, and Toyota also poured an additional US$133 million into factory expansion.
Outlooks are bright indeed. Toyota, celebrating its 50th year in Thailand, announced that it expects to produce 450,000 vehicles in the country during 2012. Ford aims to benefit from the government’s first-time car buyer program, which offers purchasers a 100,000 baht rebate, through stepped-up marketing of its Fiesta sedans and hatchbacks. In yet another upbeat announcement, vehicle parts maker Thai Rung Union Car is projecting revenue growth of 33% to more than 3 billion baht in 2012. The company just recently opened a new 300 million baht factory in Rayong.
A Core Industry in Thailand
Muscular and energetic, the automotive industry is a key driver of Thailand’s economy. As the third-largest sector in the country, it employs more than 400,000 workers and accounts for 12% of GDP. Automobile production in Thailand is split almost equally for domestic sales and exports.
The Bangkok International Motor Show is regarded the unofficial start of the domestic buying season in Thailand, with the 33rd version of the event slated for 26 March-8 April 2012. Organizers are predicting more than 1.7 million visitors and a record 40,000 vehicle orders at the show. A total of 21 manufacturers from the United States, Europe, Japan, South Korea and India will unveil their latest small cars, pickups and luxury models. The spotlight on eco-cars will be especially intense.
As more consumers seek fuel-efficient cars that are also environment-friendly with low CO2 emissions, Thailand’s eco-car scheme continues to grow. The Board of Investment (BOI) launched incentives to promote the manufacture of energy saving eco-cars in Thailand back in 2009. So far, there are five BOI-promoted companies of eco-car manufacturing. Nissan was the first, introducing its March model. Today it competes for Thai market share with the Honda Brio, Suzuki Swift and Mitsubishi Mirage. Toyota plans to launch eco-cars in 2013.
To spur development of the segment, the BOI offers special incentives to companies that manufacture parts for eco-cars. This includes granting a 90% reduction on the import duty of materials that cannot be produced locally, enabling investors to cut sourcing costs significantly. The BOI’s efforts in strengthening local capacity for production of environment-friendly vehicles also includes a proposal aimed at attracting Japanese makers of batteries for electric cars to set up factories in Thailand.
To further accelerate a go-green movement in local society, the government has also provided duty exemptions on fuel-efficient NGVs (natural gas vehicles) and vehicles using the clean E-85 ethanol fuel blend.
Back on the Road to Top 10
The Federation of Thai Industries projects that annual production of Thailand’s automotive industry will pass 3 million units from 2017, and the Thailand Automotive Institute is even more gung ho by predicting that mark will be hit sooner in 2015.
With its good fundamentals and untiring optimism, the Thai automotive industry is now back on track to enter the top 10 of global producers in a few years. Thailand slipped temporarily to 14th place last year as the flooding crimped output in Q4. The country is expected to return easily to the 12th spot during 2012 as production shifts back into high gear. The Ministry of Industry sees automobile production soaring over 30% this year to reach 2.1 million units, fueled by rising demand and the clearing of the flood-related Q4 backlog.
In 2011, Thailand produced 1.46 million vehicles. One- ton pickup trucks are the local industry’s largest single product category, making up 61% of total automotive output in Thailand, the world’s biggest producer and exporter of the line. The country is also Southeast Asia’s top sales market for pickups. Among new models introduced recently to the brisk domestic market are the Toyota Hilux Vigo, Isuzu D-MAX, Chevrolet Colorado, Ford Ranger, Mazda BT-50 PRO, Mitsubishi Triton and Nissan Navara.
Thailand’s automotive production last year was divided as 899,200 one- ton pickup trucks, 537,987 passenger cars and 20,608 commercial vehicles. Domestic sales reached 794,081 units and exports totaled 735,627 vehicles. The top five car export destinations were Indonesia, Australia, Japan, the Philippines and Malaysia, out of the 170 nations to which Thailand exports vehicles.
The country is also a major motorcycle hub. Last year Thailand manufactured nearly 2.05 million CBU motorcycles, with family models accounting for 94% of production and sports models constituting a lesser line. Honda accounted for the lion’s share, producing 69%, Yamaha 24% and Suzuki 4%. Exports totaled more than 1.21 million CBU and CKD units, going mostly to Indonesia, the Philippines, Laos, Myanmar and Australia. The government promotes development of the motorcycle sector through various incentives, including extended corporate tax holidays for engine manufacturing projects.
Thailand’s total exports of vehicles and parts in 2011 were valued at about 780.92 billion baht, with vehicles accounting for 45% and parts 55%.
Brisk Activity at Parts Makers
As carmakers launch new models to meet rising demand in Thailand, local auto parts producers are expanding capacity and innovation capability to accommodate the big upswing. Currently, Thailand has approximately 690 Tier 1 auto parts suppliers and 1,700 Tier 2 and 3 suppliers. The breakdown of the sector is 70% small companies, 20% medium-sized ones and 10% large companies. Major foreign parts manufacturers in Thailand include France’s Valeo, Germany’s Bosch, U.S.-based TRW, Britain’s GKN, and Japan’s Denso, Mitsuba and Mitsubishi. The Japan Automobile Manufacturers Association describes the quality of Thailand-made automotive parts as the highest of any ASEAN nation.
Auto parts and components represent a 400 billion baht enterprise in Thailand. Local parts manufacturers supply virtually 100% of the requirement used in the assembly of motorcycles, about 85% of parts for pickup truck assembly, and nearly 70% of those for passenger cars. To enhance development, the Thai Auto-Parts Manufacturers Association is working on a blueprint for boosting the technology, automation, innovation and human resources of local parts and components suppliers through 2020.
The Thailand Auto Parts & Accessories show is also a boon to sector growth. Scheduled this year for 26-29 April, the event brings together hundreds of local and overseas exhibitors, underscoring the country’s importance as a major auto parts sourcing hub in Asia.
As innovation is a driver of today’s industry, the BOI is offering special investment incentives for new projects in automotive electronic systems and other high-tech vehicle components. Some examples of eligible activities are electronic fuel injection systems, substrates for catalytic converters, continuously variable transmissions, electronic stability controls and regenerative braking systems.
Excellent Operational Advantages
Born in 1961 with just one assembly plant and output that year of only 525 units, the Thai automotive industry has matured into a world-class production base. Dubbed the “Detroit of the East,” Thailand is a superior investment site for international carmakers due to its strategic location at the heart of Asia, highly skilled but affordable workforce, state-of-the-art industrial estates that focus on the automotive industry, and strong network of parts suppliers. The automotive cluster concept promotes efficiency, lower cost and greater productivity as carmakers and their parts suppliers are in proximity at these specialized estates. The country’s extensive road network, well-developed seaports and international airports also make exporting quick and convenient.
Recognizing the country’s operational advantages, nearly all of the world’s leading vehicle makers, assemblers and parts manufacturers have production bases and even R&D centers in Thailand.
Automotive investors in Thailand will certainly see themselves in the right place at the right time as the 10 member countries of the Association of Southeast Asian Nations form the barrier-free ASEAN Economic Community in 2015, creating a highly lucrative single market with 600 million consumers. As an early sign of this, a business delegation from the Union of Myanmar Federation of Chambers of Commerce and Industry visited in February 2012 to discuss trade opportunities with Thailand. The group expressed strong interest in importing Thai-made one-ton pickups.
The delegation was invited to visit Thailand by the BOI, representing yet another example of the Thai government’s support in providing the local automotive industry with growth opportunities.