The Asian (excluding Japan) vehicle market has now bounced back from the devastation to demand that followed the financial crisis that spread across the region in 1997. New vehicle demand across the region this year is forecast to be some 50% ahead of 1998's nadir. However, prospects in the countries of the region vary widely with some markets currently looking more subdued or even in reverse. Tony Pugliese looks at the prospects for demand in the national markets of the region and presents forecasts for vehicle demand out to 2005.

Regional trend

New vehicle demand in Asia (excluding Japan) is forecast to exceed 6m units this year, 50% higher than in 1998 - the first full-year of the financial crisis that began to spread across Asia in mid-1997. Of this figure, China will account for over a third of the total and South Korea almost a quarter. This is unlikely to change four years from now, proportionally, but the volumes will be greater. After the recent bounce-back from the crisis levels of a few years ago, growth in Asia's vehicle markets will be much more subdued in the short to medium term. The current slowdown in the global economy is having a major effect on the recovery of most markets in the region, with some markets in reverse this year while others are struggle to match last year's volumes. A few, including China, will continue to grow seemingly unscathed by the growing gloom outside their borders.

As the market with the biggest volume potential, China has been attracting the lion's share of the region's automotive sector investment over the last few years. This is partly because China only recently relaxed its foreign investment regulations. Vehicle manufacturers are investing heavily to claim a stake in what will eventually prove to be the most promising developing automotive market. In many ways, it is reminiscent of what happened in India in the mid-1990s, shortly after the government deregulated the automotive and other sector of its economy.

In this article, we will assess the volume potential for all of Asia's developing markets to 2005, based on what we see as the most likely scenario for each individual country and the outlook for global economic growth, which we expect will improve towards the end of 2001.

Asia: vehicle sales and forecasts by country

awfd
1997
1998
1999
2000
2001
2002
2003
2004
2005
China
1,579,693
1,633,575
1,845,922
2,125,531
2,282,000
2,366,000
2,445,600
2,527,000
2,557,000
South Korea
1,512,935
773,036
1,273,029
1,430,460
1,427,000
1,527,000
1,606,000
1,669,000
1,714,000
ASEAN
1,343,687
493,116
737,539
1,093,852
1,101,000
1,139,000
1,208,000
1,279,000
1,366,000
India
728,665
614,858
826,884
849,680
795,000
890,000
937,000
970,000
991,000
Taiwan
473,129
474,734
419,163
410,308
374,000
430,000
456,000
485,000
512,000
Others *
72,000
48,000
52,000
64,000
71,000
75,000
78,000
81,000
84,000
Total
5,710,109
4,037,319
5,154,537
5,973,831
6,050,000
6,427,000
6,730,600
7,011,000
7,224,000
%ch
gr
-29.3
27.7
15.9
1.3
6.2
4.7
4.2
3.0

*includes estimates for Pakistan, Hong Kong, Brunei and smaller emerging markets.
Sources: Industry sources; just-Auto.com

China

The Chinese vehicle market grew by an impressive 22% year-on-year in the first five months of 2001, seemingly defying gravity even as economic prospects elsewhere in the world continued to deteriorate. It must be remembered, however, that this market barely flinched when the rest of the region slipped into a severe financial crisis in 1997 and 1998. Economic growth continues to be underpinned by high levels of investment, funded both publicly and privately - including enviable levels of investment from abroad in all available sectors of the economy. Improved access to credit among consumers, falling taxes and rapid economic development in the main urban areas have also kept domestic demand moving forward, and this in turn has helped to attract further investment. Both foreign and national companies have been positioning themselves in the domestic market in anticipation of China's now imminent entry into the World Trade Organisation, with many also looking to develop low-cost production bases for export markets.

GDP growth in the second quarter of the year was weaker than in the first, however, but still at a respectable 7% (compared with 8.1% in the first) and within the government's own targets for positive economic development. Any weakness in the export sector is being offset by high levels of investment, and this expenditure is likely to continue in the short and medium term. The government is looking for GDP growth this year of at least 7%, and this target is likely to be met despite signs of economic slowdown elsewhere in the world. Beyond the current year, China's economic prospects will be improved by recovering demand in key export markets and GDP growth is likely to pick up.

China: vehicle sales and forecasts by type

China
1997
1998
1999
2000
2001
2002
2003
2004
2005
Pass Cars
506,222
522,112
576,380
637,446
728,000
785,000
824,000
853,000
865,000
Comm Vehicles
1,073,471
1,111,463
1,269,542
1,488,085
1,554,000
1,581,000
1,621,000
1,674,000
1,712,000
Total
1,579,693
1,633,575
1,845,922
2,125,531
2,282,000
2,366,000
2,445,000
2,527,000
2,577,000
%ch
d
3.4
13.0
15.1
7.4
3.7
3.3
3.4
2.0

Sources: Industry sources; just-Auto.com

The 7.4% vehicle market growth forecast for this year may well appear conservative given the very buoyant first half. But we believe that there is a potential for growth to weaken further in the second half of 2001. Already we have seen volumes slipping in May. While there is increasing unease with regard to the prospects for global economic growth, and the potential knock-on effects on future inward investment, growth in the domestic vehicle demand is being mostly affected by market-specific issues. The government's recent decision to deregulate automotive sector pricing and recent cuts in automotive taxation have generated expectations of further cuts in car prices. Price deflation has held back vehicle market growth in the recent past and it will remain an issue until the price outlook becomes clearer, or in fact when prices are lowered proportionately.

Another significant issue is the recent wave of product modernisation, driven by new market entrants, emissions legislation and the industry's own ambitions of becoming a major vehicle exporter. As a result, the market is currently oversupplied by old products, as consumers are drawn to the more modern vehicles that have recently been made available. This is creating supply-side bottlenecks in some areas and oversupply in others, and addressing this will take time. The vehicle market overall is likely to continue to grow as long as annual GDP growth levels are maintained at 7-8%. The passenger car sector and key commercial vehicle segments will drive growth, as road infrastructure is improved and as economic development is focused mostly in the urban areas in the east of the country.

South Korea

Recent trends in the South Korean domestic vehicle market have been very encouraging, raising the likeliness that a collapse in domestic consumer confidence may not take place as had been widely feared. After year-on-year declines in the fourth quarter of 2000 and the first quarter of 2001, vehicle sales are currently holding steady, according to data supplied by the Korean Automobile Manufacturers Association (KAMA). We now expect domestic volumes to drift slowly upwards in the second half of the year. The economy has indeed been stabilising, though with wide performance variations between sectors. The service sector has been growing strongly in the last few months, while manufacturing has been on the decline mainly due to falling export volumes and global prices of electronic equipment. Inflation has fallen in line with greater currency exchange stability and as oil price increases last year are worked through the system. GDP growth for the full year is likely to exceed 5%, compared with around 9% in 2000. The downside risk remains in the manufacturing sector, and in the export sector in particular.

South Korea: vehicle sales and forecasts by type

South Korea
1997
1998
1999
2000
2001
2002
2003
2004
2005
Pass Cars
1,151,287
575,310
910,725
1,057,620
1,095,000
1,182,000
1,243,000
1,294,000
1,325,000
Comm Vehicles
361,648
197,726
362,304
372,840
332,000
345,000
363,000
375,000
389,000
Total
1,512,935
773,036
1,273,029
1,430,460
1,427,000
1,527,000
1,606,000
1,669,000
1,714,000
%ch
wfe
-48.9
64.7
12.4
-0.2
7.0
5.2
3.9
2.7

Sources: Korea Automobile Manufacturers Association; just-Auto.com

The stabilising vehicle market has been mainly due to moderate increases in passenger car sales in last couple of months, more than offsetting declines earlier in the year and helped by intensive new product development efforts among key domestic suppliers. In the first five months of 2001, vehicle sales were flat at 576,000 units. While the commercial vehicle market has also held up much better than most had expected, significant downside risk will remain while the industrial sector remains under pressure and exports continue to fall. We are therefore much more bearish on the prospects for commercial vehicle sales for this year, and expect only a slow recovery from 2002. The overall volume outlook is for cautious optimism, especially with overseas demand for Korean manufactured products still weak, with the significant corporate restructuring yet to be successfully completed and with unemployment likely to continue to rise. The recent improvements in consumer sentiment could take a turn for the worse.

India

The Indian vehicle market is showing some signs of recovery from the sharp pull-back that took place from the last quarter of 2000, which was triggered by a sharp fall in economic output. Although still a blip, sales of passenger cars in June rose by over 30%, according to figures released by the industry association. While this is an encouraging sign, the short-term outlook for the vehicle market remains extremely uncertain. A broader and more sustained recovery is forecast to take place from next year, however. The vehicle market is extremely susceptible to weakening GDP growth, which has fallen to below trend levels in the last three quarters and is unlikely to be much over 5.5% in the current fiscal year. Investment levels have fallen sharply, while demand for industrial goods and services has also weakened sharply.

There are signs that economic conditions are beginning to stabilise, with inflation falling back sharply in recent months from close to double-digit levels in December and January. Price increases triggered by rising oil prices and exchange rates are close to reaching their full-year cycle. This is likely to improve consumer and business confidence, but it will take time before a significant upturn in domestic demand takes place.

India: vehicle sales and forecasts by type

India
1997
1998
1999
2000
2001
2002
2003
2004
2005
Pass Cars
396,234
375,880
555,639
583,012
565,000
615,000
625,000
642,000
650,000
Comm Vehicles
332,431
238,978
271,245
266,668
230,000
275,000
312,000
328,000
341,000
Total
728,665
614,858
826,884
849,680
795,000
890,000
937,000
970,000
991,000
%ch
qwf
-15.6
34.5
2.8
-6.4
11.9
5.3
3.5
2.2

Sources: Society of Indian Automobile Manufacturers; just-Auto.com

The commercial vehicle sector has been hit severely by slowdown in economic growth, as companies and small businesses cut back expenditure until the prospect for earnings improves. Consumer demand is likely to recovery earlier, helped by a reduction in excise duties on passenger cars and multi-utility vehicles in April that triggered a round of price cuts among many manufacturers averaging around 6%. Additional duties on diesel fuel will mean that some consumer sub-segments, particularly multi-utility vehicles, and fleet operators will suffer from the budget changes.

The passenger car market in the expected to at least stabilise in the coming months, and is forecast to return to growth in the final months of the year, offsetting in part the decline in the early months of 2001. But for the vehicle market overall, growth will be patchy and a broader recovery is unlikely until 2002. We expect GDP growth rates will return to a higher range of over 7% from next year, and this should drive a more sustainable period of growth for the vehicle market.

Taiwan

Taiwan's tech-heavy economy has been hit hard by the global slump in demand for electronic and telecoms equipment. GDP growth this year is expected to fall to around 2.5% compared with around 6.5% in 2000, with lower export demand being the main drag on the economy. Pressure on companies to cut expenditure, the general unease about the global economy and ongoing difficult relations with China have all helped depress domestic sentiment. This is reflected in the dismal vehicle sales figures for the first half of the year. According to the Taiwan Transportation vehicle Manufacturers Association, sales in Taiwan of locally made vehicles - which account for roughly two-thirds of the vehicle market - slumped by almost 24% in the January-June period of 2001. No segment was spared from the decline, with car and commercial vehicle sales suffering equally.

Taiwan: vehicle sales and forecasts by type

Taiwan
1997
1998
1999
2000
2001
2002
2003
2004
2005
Pass Cars
358,902
360,388
306,771
299,168
279,000
325,000
342,000
359,000
375,000
Comm Vehicles
114,227
114,346
112,392
111,140
95,000
105,000
114,000
126,000
137,000
Total
473,129
474,734
419,163
410,308
374,000
430,000
456,000
485,000
512,000
%ch
sg
0.3
-11.7
-2.1
-8.8
15.0
6.0
6.4
5.6

Sources: TTVMA; Industry sources; just-Auto.com

With the vehicle market declining in all but a single year out of the previous seven, the vehicle parc has aged significantly and we expect demand will snap back sharply once the country's economic prospects improve. The high underlying replacement demand will underpin the market's recovery once sentiment turns. Taiwan's business sector is very efficient and likely to recover strongly once conditions improve, which we expect will be in the fourth-quarter of 2001. This may reverse some, but not all, of the decline earlier in the year and overall we expect to see vehicle sales, including imports, significantly lower in 2001. A broader recovery is not expected until 2002, but the bounce back effect is likely to make Taiwan one of the fastest growing markets in the region next year and in subsequent years.

ASEAN

The ASEAN vehicle markets have bounce-back strongly from their crisis levels of 1997 and 1998, and are facing a period of much slower growth. But the outlook is mixed, as each is faced with different economic conditions, widely varying political backdrops and different trade pressures. It is very difficult to be optimistic about the Indonesian vehicle market in the short term given the huge political transition that has taken place, the ongoing leadership battle and the potential for further unrest both in the capital and in the provinces. Management of the country's economy has drifted this year, with frequent changes in personal at the head of key institutions, the often botched attempts at formulating economic policy and the lack of any significant investment other than in the oil sector. Adding to the uncertainty is the government's offers of partial economic autonomy to many regions in an effort to secure national unity.

Despite this, the vehicle market has remained surprisingly resilient and almost out of tune with macro-economic trends. It would appear that the black economy is doing rather well, however. Official GDP data is unlikely to show growth at much over 4% this year; interest rates are high; and inflation from recent currency devaluation hasn't fully worked through the system. Taxes are also rising, as the government struggles to raise funds from the sale of ceased assets. It desperately needs raise funds to invest in infrastructure projects and to pay off debt. Data for the first half of 2001 would suggest that the vehicle market will be at least as high as last year, but there is rising concern over second half performance, and whether the country can sustain the current economic recovery altogether. We expect the vehicle market will drift lower before it improves, though we acknowledge that the outlook may well turn out to be worse than our forecasts would suggest.

Malaysia's vehicle market is expected to continue to expand, even though the economy has not been unaffected by the current global economic slowdown. The vehicle market has performed reasonably well in the first half, but a weakening of monthly sales growth in the second half will limit the growth potential for the full year. The country's exports have been affected by slowing overseas demand for electronic goods and products, though the economy has been sheltered by foreign exchange turbulence with the ringgit firmly pegged to the US dollar. The government has also been spending heavily on infrastructure projects to help keep the economy moving along. We expect that after a weaker second half, Malaysia's vehicle market will resume a stronger growth trend, and reach record volumes by the end of the forecast period.

ASEAN: vehicle sales and forecasts

ASEAN
1997
1998
1999
2000
2001
2002
2003
2004
2005
Indonesia
392,179
59,216
96,767
309,514
278,000
260,000
283,000
310,000
335,000
Malaysia
405,087
163,851
288,547
343,173
355,000
382,000
403,000
422,000
441,000
Philippines
144,968
79,811
74,401
84,132
84,000
99,000
112,000
119,000
131,000
Singapore
34,766
37,520
49,512
78,375
75,000
63,000
57,000
53,000
56,000
Thailand
357,792
144,082
218,342
262,109
291,000
315,000
332,000
353,000
379,000
Vietnam
8,895
8,636
9,970
16,549
18,000
20,000
21,000
22,000
24,000
Total
1,343,687
493,116
737,539
1,093,852
1,101,000
1,139,000
1,208,000
1,279,000
1,366,000
%ch
af
-63.3
49.6
48.3
0.7
3.5
6.1
5.9
6.8

Sources: Campi; just-Auto.com

Thailand's vehicle market growth has also remained on track, with domestic sentiment remaining buoyant despite pressure on the export sector. The new government's expansionary budget, which supports the all-important rural economy in particular, has kept domestic demand moving forward ad underpinned sentiment. Public finances are being stretched, however, making further economic stimulus beyond the current budget difficult to achieve. The vehicle market has benefited from a recovery in sentiment since Mr Thaksin came to office in January, but we believe that achieving significant additional growth in the second half of 2001 will be difficult. The economy is widely expected to expand by 2.5% this year and the export sector will be stagnant at best. The prospect of stronger, though still moderate, GDP growth from next year points to only slow vehicle market growth in the medium term, with annual sales forecast to remain far below 1996 peak sales volumes of 586,000 units.

The Philippines, perturbed by political problems that are in some ways similar to those of Indonesia, has barely moved forward in real terms from the Asian financial crisis and this is reflected in the performance of the country's vehicle market. The new government has successfully lifted domestic sentiment from January's dangerously low ebb, when former president Estrada was ousted from power. But it has yet to attract significant investment from foreign companies - something the economy needs very badly indeed. Interest rates have fallen significantly since the beginning of the year, though banks remain cautious about lending. The vehicle market has recently stabilised since the sharp volume decline that was triggered by the rising political turmoil that began last autumn. It is expected to show some positive volume growth in the second half, though barely enough to offset the earlier year-on-year declines. Going forward, an improving domestic economy, higher export demand and an increase in inward investment will help lift the vehicle market from its current lows.


To view related research reports, please follow the links below:-

Automotive country report: China

Automotive country report: India

Automotive country report: Philippines

Automotive country report: South Korea

Automotive country report: Taiwan

Automotive country report: Thailand

The automotive industries of Asia-Pacific