Thai auto industry sets pace in Asia

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Thai auto industry sets pace in Asia 
Bangkok Post: 19 Apr 2010
Thai auto industry setting the pace in asia

Thailand's automotive industry is not only a bellwether of the nation's economy - it also points to how Thailand will find its place in Asia over the coming decade.

The industry contributes around 10% of total exports, employing about 150,000 people in assembly and auto-parts manufacturing, with the capacity to produce 1.5 million vehicles a year. Thailand is already Southeast Asia's largest auto manufacturer, and aims to make the top 10 of world automakers by 2012.

The speed with which the industry has bounced back from its slump in 2008-09 caused by the global economic slowdown shows both its resilience and promise. While production in 2009 fell by 30%, figures from the last few months of 2009 and the first few months of this year suggest the industry's projections of a 40% increase for the whole of 2010 - back to 2008 levels when it produced almost 1.4 million vehicles - are realistic.

Firms which laid off workers during the downturn are hiring again and employee numbers are predicted to return to pre-crisis levels by the middle of this year. Of course ongoing political unrest is a negative factor, but the economic fundamentals are strongly positive.

Japan's major carmakers, alongside General Motors, Ford and some of Europe's leading lights, have large operations here and many plan to increase their presence. GM and Ford, for example, are building new factories in Thailand this year - Bangkok Bank in January led a group of Thai banks which lent GM the 13.5 billion baht it needed to open three new plants.

Nissan is due to shift all production of its popular March small car to Thailand - where it will be marketed as an eco-car - from Japan this year, making it the first Japanese automaker to move production of a top-selling model overseas. Thailand was chosen in part because it offers tax breaks for the production of fuel-efficient small cars.

However, tax breaks and relatively low labour costs tell just part of the story behind the Thai industry's success. The high quality of our workers is also a key element. For example, Thailand is the only country outside Germany where BMW makes its flagship 7-Series car. If the Germans trust us to meet their stringent quality standards, then clearly we must be doing something right.

I believe the auto industry's success and its potential for future growth are important indicators of Thailand's overall economic prospects.

Geographically, the industry and other Thai sectors are ideally placed to supply the many regional and global markets that are opening up with the expansion of the Asean free trade zone and bilateral trade agreements.

Much of this growth will be alongside the rest of Asia - and especially China, India and South Korea - at the expense of North America and Europe, which are still recovering from the downturn, and whose auto industries have many question marks over their long-term outlook.

But Thailand can make significant inroads against its Asian competitors as well as Western countries by moving up the value chain, increasing the amount of research and development it does locally. Nissan, Toyota and Isuzu, for example, already operate R&D and/or design centres here, but there is plenty of room for further progress.

The industry's supply chain can also be strengthened. Some assemblers continue to import certain components from their home countries, so there is still scope for second- and third-tier Thai suppliers to raise their game and compete with their offshore counterparts.

Greater domestic demand would also greatly benefit the industry. This is likely to occur anyway as average incomes continue to rise, but any acceleration in the rate of increase would provide an added fillip. Around only 50% of Thai-made vehicles are sold locally, and this proportion has been falling steadily in recent years. Still, Thailand has only one vehicle for every nine people, compared with Japan's one for every 2.5 people, so there is considerable scope to increase market penetration.

For all these reasons, I am optimistic about the industry's future. While automakers in countries like China are making great strides on the world stage with new models and rapidly improving quality, our industry's hard-earned advantages and long-standing reputation mean it will continue to be one of the leaders of the Thai economy, as Thailand asserts itself in Asia and on the global stage.

Piya Sosothikul, is an executive vice-president of Bangkok Bank. Meeting the Challenges appears every two weeks. Questions, comments or suggestions can be sent to asiafocus@bangkokpost.co.th

http://www.bangkokpost.com/business/economics/36296/thai-auto-industry-setting-the-pace-in-asia