Transcript of "140306 apac, thai auto industry comes under pressure from political unrest, paul newton (twr)"
IHS Automotive Senior Analyst Paul Newton’s latest note on ‘Thailand’s Automotive
Industry’ is given below. Paul may be reached in London on email at
Paul.Newton@ihs.com for additional comment of if you have questions.
During Asia Pacific office hours, IHS Automotive’s Namrita Chow in Shanghai is
available on email at Namrita.Chow@ihs.com and Jessada Thongpok in Bangkok at
Jessada Thongpak at Jessada.Thongpak@ihs.com.
Thai Auto Industry Comes Under Pressure from Recent Political
The long political upheaval in Thailand, coupled with an equally uncertain economic
situation, has begun to increasingly affect the country's appeal as Southeast Asia's
largest automotive production hub.
6 March 2014
Thai Automotive Industry
Paul Newton, Research Director, IHS Automotive
Global heavyweights such as General Motors (GM), Ford and Toyota have
warned of a sales decline amid the political standoff that has engulfed Thailand
since last November.
Truck-maker Hino is scaling back production in Thailand, while its parent Toyota
has already said it may reconsider its future investments. Toyota currently has
scheduled as much as 20 billion baht (USD610 million) in the country to expand
Honda’s executive vice-president Tetsuo Iwamura said last month that the
company "cautiously" made its THB17.15 billion investment in a third factory in
Thailand but has no investment plan for the country in the immediate future.
Masahiro Moro, managing executive officer at Mazda, said that Thailand's
lingering political impasse could cause investors to "lose their trust" in the
In addition, a number of Chinese automakers, which are looking to produce cars
in Thailand as they seek to secure a foothold in the country and the burgeoning
neighbouring markets of Indonesia and Vietnam, are facing even more
SAIC-CP, the joint venture (JV), has acknowledged that it is struggling to decide
on the target customers for its UK-designed MG cars in Thailand, long
dominated by Japanese automakers, which control around 90% of the market.
Chinese automaker, Great Wall Motor, said last month it had postponed plans to
build a sport utility vehicle (SUV) manufacturing plant in Thailand because of the
country's protracted political unrest.
Dongfeng Motors (Thailand), an independent distributor of the Chinese
Dongfeng brand of minivans and minitrucks in Thailand, shelved a USD10 million
expansion plan last year, citing political unrest and a weak economy.
IHS Automotive View:
“IHS Automotive expects Thai vehicle production to be delayed up to six months due to
the political crisis "given the domestic market slowdown and sluggish vehicle demand",
according to our senior analyst,” says Jessada Thongpak, Senior Analyst at IHS
Automotive, who expects a majority of the MG car components to be imported by
SAIC-CP initially from China.
That said, the SIAC-CP JV has to ensure that its vehicles meet the minimum localcontent requirement of 40% to be able to avoid heavy tax on exports from Thailand to
the rest of Southeast Asia, which could dent its competitiveness. However, Wu Huan,
the JV's president, expects to meet the local-content requirement and expects its
manufacturing plant in Thailand's eastern province of Rayong to produce 25,000 cars in
the first year and 50,000 cars in the second year.
IHS Automotive estimates that the JV's actual production in 2015 will be less than
10,000 cars, and may rise to only 15,000 cars by 2020. “Because Japanese brands
are so ubiquitous and accepted, SAIC may not be very successful in the domestic
market for a while,” predicts Thongpak.
Implications & Outlook:
Thailand produced a record 2.46 million vehicles last year, while domestic sales
declined 7.7% to 1.33 million units, down from an all-time high of 1.43 million units in
2012, when the market had been boosted mainly by the government's first-time carbuyer incentive scheme, which ended on 31 December 2012.
Deliveries of cars booked under the scheme kept the local market afloat until mid-2013,
but automakers have since struggled. Sales hit a 25-month low in January as continued
political turmoil and weak economic conditions further dented consumer sentiment.
The prolonged political stand-off, tighter loan conditions by financial institutions, a
forecast drought, and falling crop prices are expected to hurt Thai car sales in 2014. In
the longer term, the situation does not augur well for Thailand as it braces itself for more
competition for foreign investment amid the planned creation of a regional economic
bloc next year.
The situation could benefit neighbouring Indonesia where Honda opened its second carmanufacturing factory last month, and Datsun, Nissan's newly reintroduced low-cost
brand, is set to follow suit in April. Toyota is also reportedly looking at expanding
production in Indonesia owing to the political uncertainty. It could also benefit Malaysia,
whose own recently announced National Automotive Policy specifically targets foreign
investment in energy-efficient vehicles, which is not too dissimilar in its intentions to the
LCGC programme in Thailand.
IHS Automotive has a more bearish view of the country's current political impasse. We
expect 2014 Thai domestic auto sales to fall 19% to around 1.08 million units due to the
political unrest and the end of a government-subsidy programme for first-time car
We expect the country's vehicle production this year to slip 8% to 2.2 million units, a
further downgrade as we expect the negative economic factors and political uncertainty
to continue through the third quarter this year. However, we foresee strong export
momentum of pick-ups and subcompact and compact vehicles from Thailand, where
vehicle production is expected exhibit a slow pace of recovery from the fourth quarter of
2014 through the second quarter of 2015.