Analysis provided exclusively to just-auto shows that the vehicle market in the ASEAN region continued to weaken in the first quarter of the year. Tony Pugliese assesses the latest market developments and prospects in the region’s major national markets.

Sales continue to decline in Indonesia and Thailand

New vehicle sales in south-east Asia’s six main markets combined declined by 3.8% to 773,720 units in the first quarter of 2015, from 804,680 units a year earlier, reflecting continued weakness in the region’s two largest markets – Indonesia and Thailand.

New vehicle sales in Indonesia, now the region’s largest market, continued a declining trend which started in the third quarter of 2014. It was the region’s worst performing market in the first quarter of the year, with sales declining by over 14% to 282,345 units.

Economic growth remained sluggish in the first quarter, with domestic demand held back by high interest rates, depressed commodity prices, a weak currency and rising fuel prices. GDP growth in Indonesia is estimated at around 5% year-on-year in the first quarter, similar to the growth rate of the previous two quarters.

The vehicle market in Thailand continued to spiral downwards in the first quarter, with sales falling by almost 12% to 197,734 units after a huge 46% drop in the same period of last year. The country’s economy remains sluggish, with first quarter growth estimated at just 2.5-3.0%, representing a weak rebound from very depressed year-earlier data.

High household debt, depressed commodity prices and weak investment continued to hold back the economy. Although Bank of Thailand cut its benchmark rate to 1.75% during the quarter, the country’s commercial banks remain cautious in their lending. The FTI is rethinking its full-year outlook for the market, with the potential for a third straight year of decline increasingly likely.

The smaller markets in the region all performed positively in the first quarter – some more than others. Sales in Malaysia rose by 2.1% to 168,306 units, helped by dealer de-stocking in March ahead of the country’s switch over to the new goods and service tax (GST) at the end of the quarter.

Strong economic growth and low interest rates continue to drive the vehicle market in the Philippines to new heights. First quarter sales rose by almost 20% year-on-year to over 71,000 units, after growing by over 27% to a new yearly record of 270,372 units in 2014.

Further sales growth is forecast for this year, with the manufacturers’ association CAMPI expecting the total market to reach 310,000 units, reflecting low vehicle penetration rates in the country and spurred on by high consumer confidence and the availability of new models.

New vehicle sales in Vietnam increased by 69% year-on-year to 40,834 units in the first quarter, after growing by 38% to 133,588 units in the whole of 2014. Economic growth continued to improve in the first quarter, to 5.5%, with consumers and businesses enjoying low interest rates, low inflation and a relatively stable currency.

Vehicle penetration rate in Vietnam is extremely low, so there is plenty of upside potential for the market as household incomes rise and as liquidity in the economy continues to improve.

The Singapore vehicle market also continued its recovery, with first quarter sales rising by 59% to 13,296 units.

Indonesia

New vehicle sales in Indonesia fell by over 14% to 282,345 units in the first quarter of 2015, from 328,500 units in the same period of last year, reflecting s sluggish economy under pressure from high interest rates, weak exports and a slowdown in investment growth.

First quarter GDP growth is expected to come in at just below 5%, similar to the growth rate of the second half of last year. Businesses and consumers remained cautious as the new government continues its process of developing and implementing new economic policies.

Bank of Indonesia cut its benchmark interest rate by 25 basis points to 7.5% in January, after hiking rates aggressively in 2013 in response to a sharp increase in fuel prices. Further cuts are unlikely while the rupiah remains weak, as further fuel prices are likely and as the inflation risk remains high.

Consumer spending was lacklustre in the first quarter, while private investment has slowed as uncertainty grew over government policy and the weakening global demand outlook. Non-oil and gas exports fell by over 8% in the first quarter of the year, reflecting depressed commodity prices and weak demand from China in particular.

The vehicle market was affected by a sharp slowdown in commercial vehicle demand. Sales of medium and heavy commercial vehicles were particularly depressed – reflecting tough business conditions in key sectors of the economy such as mining, plantations and agriculture.

Passenger vehicle sales also declined sharply during the quarter, despite heavy discounting and aggressive marketing campaigns. Sales are expected to stabilise in the second half of the year, helped by the launch of some key new models in the all-important MPV segment.

Thailand

The new vehicle market in Thailand showed no sign of improvement in the first quarter of 2015, with sales declining by 11.8% to 197,734 units compared with already depressed year-earlier sales of 224,171 units, according to data released by the Federation of Thai Industries (FTI).

The Thai economy is still struggling under high household debt, low commodity prices and overall low consumer and business confidence. Private investment continued to weaken, reflecting the sluggish domestic demand outlook, slow disbursement of government budgets and weakening external demand.

First quarter exports are estimated to have contracted by 4% year-on-year, which the government blames on sluggish global demand and a loss of competitiveness with other exporting economies in the region.

The economy is estimated to have expanded by around 2.5-3.0% in the First quarter, which represents a sluggish rebound compared with very depressed year-earlier data. Bank of Thailand cut its benchmark rate by 25 basis points to 1.75% in March to help stimulate the domestic economy.

The FTI hinted that the domestic vehicle market may contract for a third consecutive year in 2015. This compares with its previous forecast of a 13% rise for the year. In additional to weak domestic demand, Thai commercial banks have also tightened loan approval standards due to the economic uncertainty.

Malaysia

Malaysia’s new vehicle market expanded by 2.1% to 168,306 units in the first quarter compared with 159,913 units in the year-earlier period, according to the Malaysian Automotive Association (MAA).

The market rebounded strongly in March, after weak sales earlier in the quarter due to uncertainty over vehicle prices ahead of the introduction of the new goods and service tax at the beginning of April. In the end, the tax change is estimated to have reduced list prices by around a 1-2% in April.

Dealers stepped in early with heavy discounts and incentives to help clear stock ahead of the introduction of the new tax and to address expectations in the market of lower prices to come.

The vehicle market in recent years has been supported by strong economic growth. Sales reached yet another new record high of 666,465 units in 2014, with GDP growth in excess of 6%. First quarter economic growth is estimated to have fallen to below 5% year-on-year, however, reflecting weak exports and rising uncertainty regarding the new tax.

Bank Negara’s benchmark interest rate has been left unchanged at 3.25% for almost a year. A rate cut may be imminent if a sharp GDP growth slowdown is confirmed. The weak ringgit versus the dollar continued to stoke inflation, however, and has also affected consumer sentiment, while weak exports and depressed commodity prices have also affected business sentiment.

The MAA expects a further sales rise of 2% to 680,000 units in 2015, which could be a challenging target given the slowdown in the country’s economic growth.

Vehicle sales in the ASEAN region by market, 2011-14

  2012 2013 2014 01/03/14 01/03/15 % ch
Indonesia 1116230 1229901 1208019 328500 282345 -14.1
Thailand 1436335 1325079 881832 224171 197734 -11.8
Malaysia 627753 655793 666465 159913 168306 2.1
Philippines 182779 212682 270372 59556 71205 19.6
Vietnam 80652 96692 133588 24177 40834 68.9
Singapore 33914 27374 42980 8363 13296 59
Total 3477663 3547521 3203256 804680 773720 -3.8

Sources: www.AsiaMotorBusiness.com from industry sources.