Driven by a government that is more focused on economic development than ever before, Thailand's automotive industry is making rapid progress in becoming a global automotive production centre. Vehicle output is expected to surpass one million units for the first time next year, thanks to a strong domestic market that has now fully recovered from the 1997-98 financial crisis and relentless efforts to globalise the industry. Tony Pugliese reports.

Built-up vehicle exports exceeded 236,000 units in the first nine months of 2004, according to the Thai Automotive Industry Association - more than the total exported in the whole of last year. In the whole of 2004, Thailand's automakers are likely to export close to 320,000 vehicles. But this figure is likely to rise substantially in the coming years as automakers continue to add capacity.

Government policy conducive to industry growth

Unlike in other car-producing countries in South-East Asia, the Thai government has been extremely active in consulting with the country's foreign-owned vehicle manufacturers to formulate policy conducive to growth. Thailand has secured the lion's share of the auto sector capital investment in South-East Asia since the 1997-98 financial crisis, helping it to become the manufacturing hub for the region's auto industry.

The catalyst for this was the liberalisation of foreign investment laws within the manufacturing sector in 1998, which helped bring back the automotive industry from the brink of collapse. Since then, money has flowed into the automotive components industry from all directions, but especially from Japan. Production capacity and product quality has since increased substantially - albeit mostly those operations under foreign ownership.

Nevertheless, the vast improvements in product quality have allowed Thailand not only to become the biggest exporter of passenger cars within the ASEAN: most of the global one-ton pickup truck production now takes place in Thailand and SUV derivatives are now also being exported. Many parts produced locally also meet the quality Japanese OE quality standards.

Thailand has the largest market for one-ton pickups in the world, outside the USA, making it a natural choice as a low-cost supply base for these vehicles. Overall vehicle production in Thailand is expected to come close to 900,000 units this year, compared with 750,000 units in 2003.

Having secured a dominant position within the ASEAN, Thailand is now focusing on growth opportunities beyond AFTA and the government has been relentless in developing new policy initiatives to achieve its growth ambitions. It has been looking at South Korea, Taiwan and Singapore as role models to inspire a push for greater economic prosperity. Neighbouring governments could do worse than study very carefully Thailand's approach to automotive industry policy-making.

Thai vehicle production by type, 1996-2004
 
1996
1997
1998
1999
2000
2001
2002
2003
1-8 2004
Passenger cars
138,579
112,041
32,008
72,716
97,129
156,066
169,321
251,684
200,579
Pickup trucks <1 ton
17,993
4,907
1,977
3,854
4,601
2,398
2,375
1,925
2042
Pickup trucks 1 ton
351,920
218,336
119,986
240,369
294,834
289,349
382,297
468,938
365,069
OPV
2,544
1,604
1,950
5,822
5,960
4,621
20,559
8,965
2,393
Vans/microbuses
1,095
373
60
0
0
0
0
165
0
Buses
609
554
577
81
0
271
388
90
113
Other trucks
46,688
22,488
1,572
4,391
9,197
6,713
10,011
18,745
14,198
Total
559,428
360,303
158,130
327,233
411,721
459,418
584,951
750,512
584,394

Source: The Thai Automotive Industry Association.

FTA with Australia will help exports

In January 2005, a free trade agreement with Australia goes into effect, which will help promote exports of Thai-made automotive parts and vehicles. The Thai Automotive industry Association expects that within five years exports of vehicles and auto parts to Australia will be worth US$1.2bn - double 2003 levels. Australia is already the largest foreign market for Thai one-ton pick-up trucks. The agreement will make Thai vehicles more competitive in Australia by lowering import tariffs.

New auto niche being developed

The Thai government's latest policy initiative, unveiled this year, aims to set the foundations for a strong domestic industry for small, low-emission cars. Thailand already has a strong compact car manufacturing industry - at least within the context of the AFTA region. But in global terms this segment of the industry clearly lacks scale, and in terms of quality and technology, further improvements are needed. With this new initiative, the government is clearly eyeing end-markets such as Australia and in the enlarged EU. For the latter, it has been inspired by the recent success of Indian small-car exports to Europe. Producing vehicles that could potentially sell well in China could increase the scope of its recent free trade agreement with the middle kingdom.

Although its small-car policy is still in the making, the government has set out detailed reference criteria as a guide for automakers that are considering participating in the programme. The overall dimension of the cars should not exceed 3.6m x 1.6m, they should meet Euro III emission standards and consume no more than 5.6 litres of fuel per 100km. Tax incentives will most likely be offered to local buyers as a means of boosting domestic demand, but most of the output will be made for export. Tax incentives would also be offered to encourage car companies to use Thailand as the production base, and many have already indicated willingness to join the programme.

Domestic market reaches new record

Despite the recurrence of the bird flu bug in the last few months and the increasing unrest in the deep south of the country, the Thai vehicle market is heading for a new high this year of around 600,000 units. Passenger cars account for just over a third of this total, while pickup trucks and derivatives account for around 60% of the market.

Both Toyota and Honda are the two outstanding performers in this market. They have strengthened their market share substantially in the last few years, and both continue to control pricing and product specification. The two companies have by far the strongest range of passenger vehicles in Thailand and there is no doubt that they have benefited significantly from the weakness of some of their competitors.

Mitsubishi Motors in particular has lost out - its reputation worldwide damaged by its failure to deal with customer complaints in 2002 and by the numerous recall campaigns since. Its Lancer model is clearly struggling to offer an attractive alternative to Toyota and Honda's burgeoning range of compact family vehicles, and the Galant is also struggling to generate sales volumes of any consequence.

Combined, Toyota and Honda accounted for close to 85% of domestic sales in the first eight months of 2004, compared with 63% in 2000. The Honda City, the Civic and its derivatives continue to outperform. Likewise, Toyota strengthened its presence significantly in the mid-sized car segment with the Vios almost two years ago, which followed closely on the heels of the Corolla Altis. The Wish compact MPV, based on the Corolla platform, was launched earlier this year and is also doing well, as is a new compact utility vehicle, the Avanza, which is imported from Indonesia.

With still a year to go before the new Lancer is launched, Mitsubishi's position in the passenger car market is likely to continue to weaken. Ford and its Japanese subsidiary Mazda is also struggling to find a niche for its Philippine-made passenger cars. They have faired much better in the pick-up truck and SUV segments, but will find it a struggle to win back market share in the passenger car segment.

GM has turned to Daewoo products to bolster its presence in South-east Asia and to a certain extent it looks like this strategy is working. It began assembling the Optra mid-sized family car in 2003 which it also exports to Indonesia.

Competition is set to intensify further, particularly with Renault-Nissan announcing earlier this year a new strategy for the region which focuses primarily on Thailand. Nissan Motor's CEO, Carlos Goshn, was in Thailand in April to sign off a deal to increase the company's holding in its local assembly partner, Siam Nissan Motor, from 25% to 75%. It also unveiled a US$250m investment plan which will boost production capacity to 200,000 units per year by 2008. The model range will also be strengthened significantly, particularly in the passenger vehicle segments. This process started last July 2004 with of the launch of the Teana executive saloon model.

Thai vehicle sales by type and brand, 2000-04
2000 2001 2002 2003 1-8 2003 1-8 2004
Passenger Cars
Toyota 27,298 35,448 50,734 82,734 53,138 68,818
Honda 25,416 34,811 35,464 60,774 39,440 45,501
Nissan 12,825 12,296 12,788 9,879 6,337 5,725
Chevrolet 1,483 2,316 3,846 5,414 2,463 3,725
Mercedes-Benz 2,356 3,707 4,057 5,054 3,671 3,660
Mitsubishi 3,702 4,772 7,726 5,982 3,789 2,809
BMW 2,415 3,139 3,822 2,826 1,600 1,867
Ford 958 895 1,419 1,664 1,174 788
Kia 324 1,136 939 1,085 720 712
Mazda 1,486 1,062 1,042 829 562 612
Volvo 1,484 1,623 1,613 949 595 507
Others 3,359 3,297 2,903 1,815 1,262 898
Sub-total 83,106 104,502 126,353 179,005 114,751 135,622
Commercial vehicles
Isuzu 57,496 70,307 92,725 131,422 83,271 99,740
Toyota 44,002 48,066 79,318 106,014 64,442 67,368
Nissan 18,070 22,362 31,666 33,678 19,623 23,113
Mitsubishi 26,539 20,093 25,186 28,166 17,234 19,640
Ford 16,615 16,737 19,152 24,393 15,729 15,946
Honda 4,724 4,009 18,802 8,295 6,270 2,725
Mazda 5,781 4,858 7,185 9,545 5,570 8,470
Hino 3,136 2,658 3,905 7,338 4,218 5,985
Chevrolet - - - - - 5,240
Others 2,720 3,393 5,070 5,320 3,314 3,951
Sub-Total 179,083 192,483 283,009 354,171 219,671 252,178
Total Vehicles 262,189 296,985 409,362 533,176 334,422 387,800

Sources: Industry sources.

Isuzu dominates the all important pick-up truck market

The Thai one-ton pickup truck segment, combined with passenger vehicle derivatives, typically accounts for around two-thirds of the Thai domestic vehicle market. Thailand is one of Isuzu Motor's strongholds thanks to its continued dominance of the domestic pickup truck market. Last year it sold almost 124,000 pick up trucks domestically and its Samut Prakan plant near Bangkok is currently running at full capacity. This plant produces models mainly for the domestic market, while export models are made at GM's plant in the Eastern Seaboard industrial estate in Rayong province. Isuzu is trying to squeeze out additional volumes at this plant by eliminating the last remaining bottlenecks. It hopes to be able to make 140,000 units for sale domestically this year, rising to 150,000 in 2005. If domestic vehicle demand continues to increase further, the company has indicated that further significant investments will have to be made to increase capacity to 200,000 units.

Thai domestic pickup truck sales by brand, 2000-04
Isuzu 53,335 65,893 87,924 123,789 79,408 93,567
Toyota 38,616 42,832 73,286 99,901 60,557 62,327
Nissan 13,967 19,562 29,565 31,449 18,069 21,585
Mitsubishi 24,418 18,759 24,229 26,007 15,807 18,634
Ford 15,609 16,735 19,077 19,659 13,034 12,818
Mazda 5,757 4,858 7,185 8,309 4,635 7,779
Chevrolet - - - - 5,240

Total
one-ton pickups

151,702 168,639 241,266 309,114 191,510 221,950

Sources: Industry sources.

Toyota to challenge Isuzu's leadership

For the moment, Tri Pech Isuzu Sales Company - Isuzu's local distributor - is monitoring demand very closely, especially in the wake of the high-profile launch of Toyota's Hilux Vigo pick-up truck range in September of this year. In anticipation of the new Vigo launch, Toyota's pickup sales so far this year have underperformed the market substantially, but this is expected to change soon as production of the new model is ramped up. Toyota has made its Thai operations the main full production location for one-ton pick-up trucks worldwide. It is developing economies of scale at its operations that are unprecedented in this part of the world.

The single and double cab models form the mainstay models of the IMV programme which Toyota has been developing for the last few years. An SUV based on this same platform will go into production next year and will be sold in selected overseas markets. A fourth model - the Kijang Innova MPV - is produced in Indonesia using the same platform.

The new pickup trucks and SUVs will be assembled in South Africa and Argentina within the next 12 months from kits imported from Thailand, while the new Kijang Innova MPV will also be assembled in Malaysia, India and possibly in Vietnam. Toyota has increased production automation at its Thai and Indonesian plants, including welding robots in the body shop and other automated processes, which it says helps it achieve the required international quality standards.

Global platform with 500,000 units annually

The combined output target for IMV vehicles produced worldwide is 500,000 units, providing enviable economies of scale in the Thai pickup sector. The pressure on Isuzu and other pickup manufacturers can only increase. In the last year, GM has come to the aid of Isuzu by joining in the pickup programme. It now produces Isuzu pickup trucks for export and for sale under its own brand domestically and overseas at the Rayong plant, helping to add volumes and improve economies of scale of its own.

Mitsubishi struggles to compete

Mitsubishi was the first company to use Thailand as its global production base for pickups, but its weakening global market presence has meant that its Thai operations are falling behind in terms of scale compared with its more invigorated rivals such as Toyota, GM-Isuzu and Ford-Mazda. The replacement for its current L200 Strada pickup will be launched in August 2005. The company announced that with the new model, truck production capacity would be expanded to 116,000 units from the current 84,000 units. It typically exports around 70% of its pick-up truck output.

Nissan Motor has done well to keep up with the segment leaders despite its much smaller economies of scale. The current pick-up truck has been in production for several years, but sales seem to be holding up well. This reflects among other things the ongoing strengthening of the dealer network which was hit hard by the Asia crisis. Similarly, the Mazda brand is also enjoying a revival despite the Ford brand being given priority.

Medium/heavy truck sales growing strongly

The medium and heavy truck segments have been performing very strongly in the last few years. It has taken the road haulage sector some years to use up the surplus capacity that developing during Asia crisis. But during the last few years, additional capacity has been required to meet the strong domestic growth in rising external trade. The building sector is booming once again and exports are rising to new record levels. The haulage industry has also been modernizing, with a tendency towards heavier trucks, and Nissan Diesel and Hino have been doing very well. Production of trucks over 10 tons GVW more than doubled in 2003 to around 10,800 units and growth rates on excess of 60% were seen in the light and medium truck segments. Strong growth in truck sales has continued into 2004, although output has slowed considerably in recent months as the pent-up demand is fulfilled.

Auto market intelligence
from just-auto

• Auto component fitment forecasts
• OEM & tier 1 profiles & factory finder
• Analysis of 30+ auto technologies & more