Vehicle sales in South-East Asia reached a new high in the first half of 2005, with volumes in the five largest markets combined rising by 19.3% to surpass the one million-unit mark for the first time. All five markets performed positively, despite falling economic growth across the region. Indonesia led the way up with a 30.6% leap in volumes compared with the first half of 2004 – to 295,122 units. But there is some caution on the outlook for the second-half of the year. Tony Pugliese reports.
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Four of the top five markets in the ASEAN trade block reported new record highs in the first half of 2005. Thailand remained the largest market during this period with sales up by 15.8% to 345,897 units. Sales in Malaysia rose by 17.4% to 260,838 units and in Singapore new registrations amounted to 68,652 units – 6.9% more than a year earlier and reflecting high vehicle de-registrations and strong re-export activity.
The Philippines, the slowest to recover from the Asia financial crisis in the late 1990s, was the only market not to post a new record high. Sales volumes rose by 13.3% in the first half, thus showing signs of underlying strength. But the market is now the smallest among the region’s top five, with Singapore enjoying buoyant automotive trade.
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High oil prices cut growth prospects
Despite the strong positive momentum, the industry is increasingly uneasy about the outlook for the second half. Consumer spending is coming under increasing pressure from fast-rising fuel and energy costs as the price of oil continues to make new highs, and from higher taxation. Government spending is also being undermined by the soaring cost of fuel subsidies. Rising annual inflation and weakening currencies valuations are also increasing the prospect of further interest rate hikes.
After peaking last year, GDP growth rates in the region have dropped back sharply and further falls are expected in the second half. Few in the industry expect second half sales volumes to match those of the first half, with the prospect of a stagnant second-half year-on-year performance seen as the most likely outcome for Indonesia, Thailand and the Philippines despite the recent buoyancy. Governments across the region are also looking at the prospect of increasing automotive taxes as a means of taxing energy consumption, targeting mainly larger cars.
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By GlobalDataThai market driven by strong pickup truck sales
Thai consumers shrugged off worsening economic conditions and continued to drive the country’s domestic vehicle market to new highs this year. The strong momentum in the market continued throughout the first half, as buyers continued to be attracted by new models, discounting and by improved access to finance. The main strength of the market was in the pickup truck sector, which expanded by 32.1% to 230,788 units, while passenger car sales dropped by 10.5% to 90,818 units. Sales of other commercial vehicles rose by 8.3% year-on-year to 24,291 units.
Toyota was one of the main companies driving demand, with last year’s launch of its new IMV range that includes new pickups, SUVs and an MPV model all sharing the same platform. Its market share has reached a high of 40.6% as sales amounted to 140,331 units. The company’s first-half pickup truck sales roes by 59.4% to 88,330 units.
The increased interest in the pickup sector also benefited other manufacturers, albeit as a result of strong discounting and marketing campaigns. Mitsubishi, Chevrolet and Isuzu all experienced higher pickup truck sales, though Chevrolet – having entered the segment last year- was the only company to increase its share of the segment in addition to Toyota. Mazda benefited from a strengthened presence in the passenger car sector and overall volumes rose by 28.1% to 8,936 units.
Economic growth in Thailand slowed sharply in the first quarter of the year, to 3.3% year-on-year compared with 6.1% in the fourth quarter of 2004. Although this year’s growth comparisons are made with a strong 2004, the economy has come under significant strain from high oil prices. Lower income from tourism following last December’s Tsunami, lower agricultural output due to drought in the east and slowing export growth all contributed to the slowdown.
Local economists now expect GDP growth for the full-year to be in the region of 3% in 2005 and the current account deficit to reach 4% of GDP. The weakening baht and the soaring cost of importing energy are fuelling inflation, which is now close to 4% year-on-year. The prospect of further interest rate increases is increasing.
The industry is also very cautious about the outlook for the vehicle market in the second half of the year. Growth has also been increasingly concentrated in the pickup segment. There has been talk of increased vehicle taxation and further fuel subsidy cuts are on their way. Consumer spending has already been affected by rising costs. At best, the market is expecting a stagnant second half, as consumer confidence continues to ebb.
Indonesia
Indonesia’s new vehicle market led the region’s growth trend in the first half of 2005, with sales volumes rising by over 30% to 295,122 units. This comes on the heels of even stronger sales growth in 2004, when volumes rose by over 36% to a record 483,094 units. Toyota sold 91,553 of these vehicles, to claim a market share of 31% compared with 29.4% in 2004, helped by the launch of the Innova a year ago. The recent launch of the Fortuner SUV imported from Thailand will no doubt help the company consolidate its market leadership.
Economic growth accelerated sharply in the last twelve months, compared with the lackluster 3-4% growth rates of the previous several few years. GDP growth reached a high of 6.65% in the final quarter of 2004 and 5.1% for the year as a whole, but the growth rate began to slow in the first quarter of 2005, to 6.35%. Growth has been largely domestically driven, with consumer spending rising – helped by better access to finance, a booming construction sector and rising levels of investment overall.
Economic conditions nevertheless are getting tougher in Indonesia. The weakening rupiah and high international oil prices have dramatically increased the cost of government fuel subsidies, putting the state budget and government spending under severe pressure. While cuts in fuel subsidies over the last two years have led to sharp increases in fuel prices, the budget deficit continues to spiral and tax increases and cuts in other expenditure elsewhere will be needed.
With further reductions in fuel subsidies and higher electricity prices expected by year-end, the inflation outlook remains tough. Annual inflation has been in the region of 8% and will likely remain at these levels for some time. Economic activity is widely expected to slow further in the second half, bringing the full-year GDP growth to around 5.0-5.5%.
In Indonesia too the industry is increasingly cautious about the second-half outlook for the market. Having led the market’s growth in recent years, Toyota now expects overall new vehicle sales in the country to reach 530,000 units this year. Gaikindo – the automotive industry association – is slightly more upbeat, predicting sales to reach 550,000 units.
These forecasts equate to a second-half at best at the same level as last year, but potentially 10% lower, with the market correcting following a period of particularly intense new product activity. The government has discussed numerous new policy initiatives that could also affect the market in recent months, including environmental measures for Jakarta which would force old vehicles out of the city, higher taxation and fuel surcharges on large cars.
Malaysia
Malaysia’s vehicle market maintained its strong momentum in the first half of 2005, with domestic demand driven by new model launches and rising consumer debt. This recent strong growth comes on the heels of an equally buoyant 2004, which saw volume growth of 18.3%. Competition in the vehicle market has increased significantly, with imports able to compete more effectively with national car companies such as Proton thanks to changes in taxation policy and a more liberal pricing environment. Easier access to finance and longer repayment periods have also made passenger cars more widely affordable.
With 76,514 unit sales, Proton saw its share of vehicle sales dip to below 30% in the first half, to 29.3% to be precise, with its loss of market share accelerating as the year unfolded. In June it sold 12,432 vehicles, enough for a 26.3% share of the market and only marginally ahead of Perodua’s 25.5% market share for the month. Toyota’s newly launched Innova and Avanza models continued to attract rising buyer interest. Perodua’s new Myvi small car, launched earlier in the year, also sold well and prevented Proton’s newly launched Savvy from making a major impact.
In the first half Toyota-Lexus, with its strengthened model range, saw its sales volumes rise by 72% to 38,962 units to claim 14.9% of the country’s vehicle market – its highest share ever. Perodua’s vehicle sales rose by 11.1% to 64,345 units, though its market share slipped to below 25%.
The effects of high oil prices are beginning to be felt by the economy, however. GDP growth rates have slowed, to 5.7% in the first quarter and an estimated 5.1% in the second, though admittedly from 2004’s very strong growth levels of 7.5%. A further slowdown in expected in the second half, with economists now expecting full-year GDP growth to be in the region of 5.0%.
The unpegging of the ringgitt may cushion the blow of higher oil prices, however, provided that – as many anticipate – it will gain against the US dollar and other currencies in the region. It also means that imports will likely become more competitive, which will likely put further pressure on national car company Proton. Details of the long awaited new automotive policy are expected to be published in September and will likely be beneficial to car pricing. Thus, the second-half prospects for the vehicle market may not be as gloomy as in other markets in the region, despite the recent strong growth.
The Philippines
The Philippine vehicle market put in its best performance since the Asian financial crisis in the late 1990s. But it remains far from its mid-1990s peak levels of close to 180,000 units. Here too, Toyota was the main driving force, with the Innova and Fortuner IMV models attracting most of the market interest. The company grabbed more than 35% of the market, though its share of passenger car sales slipped from 45% to 42% – reflecting the launch a year ago of Mazda passenger cars. The Hyundai Getz, launched in February, also performed well in the market. Ford-Mazda should continue to strengthen with the launch of the new Ford Focus and Mazda 3 derivative in July.
The country has enjoyed the strongest economic expansion since the Asia crisis in the mid-1990s, with GDP growth at 6.1% in 2004. Since then, growth in economic activity has slowed, with GDP expanding by 4.6% in the first quarter of 2005 and by a slightly better 5.0% in the second quarter. Rising oil and electricity prices continue to be drag on spending, with the reported annual rate of inflation at around 8.5%.
Agricultural output improved in the second quarter after suffering from droughts in some regions, while high government debt is also limiting expenditure and infrastructure development. Exports have suffered from slowing sales to Japan, the country’s largest export market.
The recent strong growth in vehicle sales, albeit from historically low levels, has been primarily product driven. Long awaited launches by Toyota have triggered higher buying, as has uncertainty over future car taxation and pricing. Increases in VAT rates from 10% to 12% are widely expected by year-end, to help plug the country’s gaping budget deficit.
Despite the recent political crisis sparked by allegations of vote rigging by the current president Gloria Arroyo, the industry remains upbeat about the outlook for the market in the second half. Both Toyota and industry association CAMPI expect full-year sales in the region of 93,000-95,000 units, but the rising political instability, rising oil prices and slower GDP growth will inevitably impact on consumer sentiment.
Tony Pugliese
