In this month’s management briefing Tony Pugliese takes a close look at the growing automotive markets and industry in the ASEAN area of southeast Asia. Part 2 looks at trends in vehicle manufacturing, focusing on OEM developments in Thailand and Indonesia.

Summary: Indonesia and Thailand lead regional growth…

As vehicle sales in South-east Asia soar to new record levels, leading vehicle manufacturers in the region are struggling to keep pace with demand. Market growth has been particularly rapid in Indonesia and Thailand, while the Malaysian and Philippine markets also hit new record highs last year.

With further strong growth forecast in the coming years, Japanese vehicle manufacturers are investing heavily in expanding production capacity in the region, particularly in Indonesia and Thailand.

…and attract most investment

Indonesia, with a current population in excess of 240m, is expected to overtake Thailand as the region’s largest market in the next 2-3 years and has emerged as a key investment destination for the global automotive industry.

Thailand has also become the main global production centre for one-ton pickup trucks and is also benefiting from rising global demand for these vehicles.

Small-car policies to drive future growth

The governments of both countries are implementing new policies designed to encourage investment in small car production, while lower taxes will promote local sales. These policies will be key to driving the next phase of growth in these markets.

In the short term, vehicle manufacturers are struggling to overcome a second major natural disaster in the region in less than one year. Extensive flooding in Thailand’s northern and central regions brought to a halt most of Thailand’s automotive industry in October and November.

Floods affect regional supply

Once again, Asia’s automotive industry faces severe disruption to component supplies, having just overcome the problems caused by the devastating earthquakes and tsunamis in Japan in March.

Most vehicle manufacturers in Thailand were forced to cease production for a month from mid-October, with most major facilities restarting operations in the second and third weeks of November.

Product and component supply shortages have also been reported in other ASEAN markets and as far away as Japan, North America and Europe.

One again, Honda has been the worst affected, with its ASEAN manufacturing hub located in Ayuttaya province – one of the worst hit by the floods. Honda’s sales in the region are already sharply lower year-to-date and this latest natural disaster will delay its recovery until well into next year.


Q2 sales affected by earthquake in Japan

The Thai vehicle market was disrupted significantly by the devastation caused by the earthquakes and tsunamis in Japan in March. While overall sales continued to grow strongly, the dominant vehicle manufacturers have underperformed.

Overall sales in the first nine months of the year rose by 20.6% to 670,970 units, with market leader Toyota reporting a sales increase of just 13.2% to 255,140 units. Isuzu’s sales increase was more moderate, at 7.3% to 113,310 units.

Honda sales down 14%

Honda clearly was the worst affected by the second-quarter supply disruption, with sales falling by close to 11% to 73,318 units in the nine-month period. Key models such as the Civic, City and CR-V were hit particularly hard.

Some of the mid-sized players have benefited significantly from the disruption, as well as from strong product programmes. Nissan Motor has enjoyed strong growth as a result of full production of the March sub-compact car, as well as solid demand for the Frontier pickup truck. Total volumes rose by close to 45% to 55,110 units in the nine-month period.

Mitsubishi, Ford see sharpest rise in sales

Mitsubishi Motors’s sales almost doubled to 52,708 units in the nine -month period, helped by brisk local sales of the Triton pickup truck and the continued popularity of the Pajero Sport SUV.

Ford’s sales more than trebled, thanks to the introduction of the Fiesta sub-compact car in the fourth quarter of 2010 and strong demand for the Ranger pickup truck.

Vehicle sales in Thailand by brand, 2009-2011

Brand 2009 2010 1-9 2010 1-9 2011 % Change
Toyota 230,315 325,670 225,345 255,140 13.2
Isuzu 110,919 144,305 105,589 113,310 7.3
Honda 93,409 114,056 82,063 73,318 -10.7
Nissan 30,403 54,401 38,043 55,110 44.9
Mitsubishi 20,866 39,594 26,614 52,708 98.0
Mazda 13,241 35,143 25,763 31,847 23.6
Chevrolet 15,111 20,026 13,764 22,986 67.0
Ford 7,634 13,636 7,083 22,846 122.5
Hino 6,923 9,861 6,929 7,705 11.2
Suzuki 2,460 5,488 3,934 6,639 68.8
Proton 2,939 5,530 4,365 4,660 6.8
Others 14,638 32,657 16,867 24,701 46.4
Total 548,858 800,367 556,359 670,970 20.6

Sources: Industry sources


Strong growth despite some Q2 disruption

Strong demand growth for vehicles in Indonesia meant that very few vehicle manufacturers reported a negative performance in the first nine months of 2011. Market leader Toyota delivered record sales of 238,294 units in this period – albeit with slightly below trend growth. Sister company Daihatsu reported a slightly better performance, with volumes rising by slightly above market trend to 100,384 units.

The two companies have experienced some disruption to supply in Indonesia as a result of the Japanese earthquake and tsunami in March. The two brands combined account for over 51% of total vehicle sales in the country.

One factor holding back the brands is limited capacity at PT Daihatsu Astra Motor – Indonesia’s largest vehicle manufacturer. The company’s plant in Sunter, in north Jakarta, makes the best-selling Toyota Avanza and Daihatsu Xenia models.

Some disruption to the market is expected in the final two months of the year as a result of shortages of product supplied from Thailand. Sales of pickup trucks and passenger cars in particular will be affected.

Mitsubishi-Fuso enjoys strong CV demand

Strong economic growth meant that Mitsubishi-Fuso continued to enjoy strong demand for its commercial vehicles, with sales rising by close to 24% to 81,000 units. Its locally-made models have the highest local content and experienced little disruption to supply. Hino was more affected by supply problems, which is reflected in its below paar growth of 6%.

Honda was the most affected by disruption to its supply chain in the second quarter, with year-to-date sales falling by over 18% to 36,294 units. Its sales will likely be disrupted further in the fourth quarter and into 2012 as a result of the floods in Thailand.

Nissan and Suzuki look to have benefited most from Honda’s weakness, while Ford and Mazda also have made significant progress – mainly on the back of the launch of the Mazda 2 and Ford Fiesta last year.

Vehicle sales in Indonesia by brand, 2009-2011

Brand 2009 2010 1-9 2010 1-9 2011 % Change
Toyota 186,687 280,680 208,972 238,294 14.0
Daihatsu 77,513 118,591 82,490 100,384 21.7
Mitsubishi-Fuso 53,147 88,803 65,525 81,000 23.6
Suzuki 44,689 71,210 51,026 68,707 34.7
Nissan Motor 21,440 37,542 27,395 37,382 36.5
Honda 39,570 61,336 44,458 36,294 -18.4
Isuzu 15,236 24,012 17,379 21,213 22.1
Hino 11,390 21,297 16,164 17,167 6.2
Mitsubishi-Motors 8,588 17,680 12,818 16,572 29.3
Ford 6,348 8,871 4,809 12,586 161.7
Mazda 1,542 6,012 4,325 6,660 54.0
Kia 3,195 6,550 4,451 4,961 11.4
Hyundai 5,207 5,041 3,768 3,972 5.4
Chevrolet 2,612 4,508 3,436 3,481 1.3
Mercedes-Benz 3,450 4,558 3,416 3,320 -2.8
Others 2,934 8,019 5,807 7,864 35.4
Total 483,548 764,710 556,239 659,857 18.6

Source: Gaikindo

Production capacity tight after strong growth

After strong growth in the last two years to new record highs, capacity in local vehicle industry was getting tight. Significant new investments are currently being made which will drive the next phase of market growth in the next few years.

Even some of the smaller players and also relatively recent entrants are preparing to set up and expand local production to feed off the strong growth in automotive demand in the country.

Small car incentives to spur further growth

New vehicle sales are expected to exceed 850,000 units this year – a new record high for the market. New government policies are expected to be introduced at the end of next year that could potentially drive the market much higher.

While not yet confirmed, the industry expects lower taxation for small cars and local production incentives to drive demand for small cars in the country. Some expect the total vehicle market to surpass the 1 million mark in the two years.

PT Daihatsu Astra Motor is investing IDR 2.1 trillion (USD 244 million) to build a second plant in Karawang – around 70km east of Jakarta. The plant will have the capacity to produce 100,000 small low-cost cars per year from the end of 2012.

Toyota is expected to take around 70% of the output and Daihatsu the remainder. The cars are expected to be priced at around USD 10-11,000 for entry-level models. The production target for the first full year (2013) is 50,000 units.

Separately, Toyota Motor announced plans to invest around IDR2.9 trillion (US$336 million) in a new plant which is scheduled to be completed by early 2013. It will have an initial annual production capacity of 70,000 vehicles per year. It will be build near its existing facility in Karawang, which produces the Innova MPV.

Suzuki Motor plans to invest USD 800 million in PT Suzuki Indomobil Motor by 2013. It plans to complete construction of a new small car plant in Bekasi, near Jakarta, by the end of 2012. It will also expand capacity at its existing facility and also increase motorcycle production capacity.

Annual four-wheel vehicle capacity will be increased to over 200,000 units, from the current 120,000 units. Vehicles will be sold locally and exported to other markets in the region.

Nissan Motor is investing JPY 25 billion (USD 325 million) to increase capacity from the current 60,000 units per year to 180,000 units by 2013. It will also build a new engine assembly plant. The company plans to target the small and medium car segments and expects to take advantage of new government incentives.

Hyundai Motor is considering investing in a new regional facility, or expanding its existing facility in Bekasi, with a  view to completing the investment by 2013. The company would likely target the country’s small car segment and look to export to other ASEAN countries.

General Motors plans to restart production at its assembly plant in Bekasi in early 2013. The company will invest USD 150 million in modernising and expanding its existing facility to 40,000 units per year.

The company is expected to produce a new compact MPV to be sourced from its GMDAT subsidiary in South Korea, for sale locally and in other markets in the region.

A number of other vehicle manufacturers are looking to assemble vehicles locally, including Volkswagen, which is considering building its own facility in the country.

Peugeot plans to restart production at the end of 2012 at PT Gaya Motors, a subsidiary of its distributor PT Astra International. CKD kits will be sourced from France, with some generic parts to be made locally.

Tata Motors is considering producing its 600cc Nano mini-car in Indonesia for sale across the ASEAN region. A report suggested that Tata is considering setting up a 50,000-unit/year facility by 2013 in partnership with PT Astra International – the country’s largest distributor.

China’s Geely Automobile plans to establish a production hub in Indonesia by 2015, with an initial output capacity of 10,000 units/year.

Still to come in Part 3…a look at OEM developments in Malaysia, the Philippines and Vietnam

See also:

An analysis of the ASEAN markets: November 2011 management briefing: ASEAN – part 1