Overall, Asia’s developing automotive markets saw growth of 4% last year – to notch up a new record for unit sales against a backdrop of weakening global and region-wide GDP growth. Demand in the countries surveyed exceeded six million units for the first time ever, driven by continuing strong consumer demand in many markets. Last year’s sales growth was much lower than the double-digit rates of the previous two years, when the region was recovering from the 1997 financial meltdown.

But a closer look at the 2001 national markets reveals a very mixed performance. The region’s largest market, China, performed exceptionally well. According to data released by the industry (which has to be viewed with a degree of caution), vehicle demand grew by 14% in 2001 in the world’s most populous nation – with passenger car sales leading the charge with a jump of almost 18%. Malaysia – the region’s fourth-largest vehicle market last year, also put in a robust performance with an increase of 15.5% which brought the market close to its pre-crisis highs. Improved availability of new models from Proton helped to drive the market forward.  The worst performers were India, Taiwan and the Philippines, which saw new vehicle demand fall by around 9% last year. Elsewhere, the trend either way was more muted.

Reducing pressure on the economies in the region last year was the falling price of oil, which helped to ease concerns over cost and price inflation. But overall,

“the economic climate continued to deteriorate throughout most of the region”

the economic climate continued to deteriorate throughout most of the region last year, and there few signs that conditions will improve in the next few months. Japan remains a major source of uncertainty, definitely on the export demand side but also in respect of currency valuations. Most regional currencies have shrugged off the recent yen devaluation, which should help the Japanese vehicle manufacturers and thus demand in the region, as long as this divergence lasts. But there is some concern that this may not last, and that the currencies that are currently pegged may be forced to devalue.

Key to a resumption of stronger growth in Asia will be a revival in the large export markets in the West, particularly in the US and Europe. The other catalyst for the resumption of higher GDP growth in the region will be a pick up in corporate investment, but this is expected to be selective at best in the short-term. Bank restructuring following the fall-out of the region’s markets has been disappointing, and progress in this area will be crucial to ensure that consumer demand can continue to grow and that companies can fully harness opportunities during the next recovery cycle. Government and private debt remains a major impediment for a rapid recovery in regional demand, and political instability also has a major influence on consumer confidence.

With these factors in mind, I expect that vehicle demand in the region will grow by around 1.4% in 2002, and that growth will not accelerate significantly from 2003. The performance of the individual markets will vary significantly, however. China, South Korea, India and Taiwan will be the main sources of growth in regional vehicle sales this year, the latter two having been the worst performers in 2001. The Philippines, too, should bounce off its lows this year. With more markets contributing to growth in 2003, regional vehicle demand is likely to rise 4.4% next year.

China has continued to attract the lion’s share of the region’s foreign investment, and this has helped it maintain relatively high GDP growth (in the 7-8% range) over a long period. Its transforming economy, the broader availability of credit, falling car prices resulting from lower taxation/tariffs and greater competition continues to attract new private buyers into the market. Its entry into the WTO at the end of last year is expected to be positive for the vehicle market in the short-term, as tariffs continue to fall. The country’s improved access to export markets in general will help maintain momentum in the economy. But most observers are keeping a wary eye on the growing unemployment that is resulting from the ongoing economic restructuring, which could become a source of social unrest, and any signs of a slowdown in inward investment. I’m cautiously optimistic that vehicle demand will continue to increase in the short-term, though much flatter growth is expected in the medium term.

South Korea’s consumers have also shrugged off the growing weakness overseas. Some corporate restructuring has taken place, but the effects of lay-offs have been in part offset by growth in the small business sector. Unemployment has clearly not risen as sharply as many had feared – at 3.7% in January – despite the drop in GDP growth from the double-digit rate of 2000 to around 3% in 2001. The export sector remains very competitive, particularly for cars and consumer electronics. There are increasingly positive economic signs coming through from South Korea, and GDP growth is broadly expected to be around 4% in 2002. New products have been the main source of volume growth in the vehicle market, with long waiting lists for the most popular models. Hyundai-Kia group has benefited significantly from Daewoo Motor’s troubles, and is expected to remain the main beneficiary of the tax incentives that the government introduced at the end of last year.

Automotive tax incentives introduced in India last March failed to stimulate vehicle market growth last year. Weakening economic conditions, a drifting currency and inflationary pressures evidently prevailed on the mood of buyers. GDP growth is expected to be over 5% in the current fiscal year, which is clearly not enough to drive the economy and the vehicle market forward. The industrial sector in particular was weak, along with the hi-tech/software sector. The correlation between the vehicle market and GDP growth is extremely close in this country, but a moderate improvement this year is expected. Some of last year’s negative economic influences have dissipated, and key segments of the economy should see some recovery this year. Overall, the domestic vehicle market should show some recovery, particularly in the medium and heavy truck sector and cars/utility vehicles.

Economic growth in the ASEAN is expected to be subdued this year, with GDP growth forecasts generally ranging between 2-3% for the major economies. Most of the growth is expected to come in the second half of the year. This rate of growth is clearly not enough to drive the economies forward, and reduce poverty and unemployment. The export sector will likely remain weak until the second half of the year, and overall full-year performance for this sector is expected to be flat for the region. After the strong bounce-back in the last two years, we expect a moderate decline in Malaysia, Indonesia and Singapore. The Philippines is expected to recover this year from its lows, and Thailand’s recovery is also forecast to continue – albeit at a moderate pace. A broader recovery is expected to take hold from 2003, as global economic growth picks up.