Auto markets in South East Asia were mostly in the red in the first half of 2006, according to data released by the national trade associations. The economies in the region are increasingly burdened by the rising cost of borrowing, accelerating inflation and record high oil prices.
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Singapore was the only market to report growth in the region this year, with record levels of new registrations triggered by high vehicle de-registrations and re-exports. By contrast, Indonesia was by far the worst performing automotive market, with a year-on-year loss of almost 50% in the first half of the year.
Combined vehicle sales in ASEAN’s top five markets fell by almost 17% in the first half of 2006 to 848,609 units. The industry in the region is far less upbeat about the outlook for demand over the next twelve months, as oil prices show little sign of weakness, as interest rates continue to rise and as the prospect for exports becomes more uncertain as a slowdown in the US economy looms. Sales forecasts made early in the year have been downgraded substantially since.
Governments across the region are looking to increase expenditure, particularly infrastructure investment, to help maintain the current GDP growth momentum. But consumer purchasing power and sentiment has declined significantly and automotive markets will struggle to grow in the coming months.
The most notable first-half decline was seen in Indonesia, where vehicle sales dropped to 149,215 units compared with last year’s record 296,316 units. While interest rates have been trimmed back slightly in recent months, the market is still reeling from the previous autumn’s tightening policy which saw interest rates rise from 8% to 12% in a erpiod of six weeks.
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By GlobalDataThe increases were made to address the double-digit inflation caused by rising oil prices and repeated cuts in fuel subsidies. Fuel prices have trebled in the last three years, which has helped drive demand for smaller, more fuel-efficient and overall cheaper vehicles. In the first half of 2006, sales of the small 1.0-1.5L van-based MPVs (Avanza, Xenia, APV) that went into production at Daihatsu and Suzuki in the last few years amounted to 37,392 units – or 25% of overall vehicle sales. Small hatchbacks also launched in the last few years, particularly the Honda Jazz and the Toyota Yaris, have also attracted an increasing share of vehicle purchases.
The government is still targeting GDP growth of 5.8% this year and 6.3% in 2007, but these projections increasingly rely on growth in the oil sector and large infrastructure and construction projects. Consumer spending is unlikely to recover any time soon, at least until interest rates fall much further and wages catch up with the 16-18% annual inflation of the last twelve months. Monthly auto sales will likely remain at current levels in the foreseeable future.
At the beginning of the year, the Thai vehicle market was widely tipped to expand by 7-10% in 2006 and initial sales reports were encouraging. But the market had become a bit saturated in places, particularly in the all-important pickup segment and that of larger trucks. Slowing GDP growth, rising inflation and interest rates and the prolonged political upheaval have combined to weaken consumer sentiment. Sales have been in decline since March and the severe flooding in the north of the country in June added to the sluggishness.
With re-elections scheduled for October, political uncertainty will continue for at least two more months. GDP growth has fallen to around 4% so far this year. The current caretaker government, hopeful of a clean and decisive election in October, is looking for a fourth quarter recovery and GDP growth ranging between 4.5-5.0% in 2006 and 2007. It warned than an increase in government spending will likely be needed to achieve this, however.
Rising fuel prices have helped stimulate demand for small-sized cars – benefiting primarily Toyota (Yaris) and Honda (Jazz). Honda has also outperformed this year thanks also to the launch of the all-new Civic, one of the most popular models in Thailand. The two brands accounted for a staggering 83% of passenger car sales in the country in the first half of 2006.
Similarly, the Malaysia automotive industry is far less optimistic about the short-term outlook for the domestic market than it was six months ago. In the first half of 2006, automakers sold a combined 247,248 vehicles – 5% less than a year earlier.
The Malaysian Automobile Association now expects the market to fall to 6% this year, instead of growing by 2.5% as it had forecast back in January. The association cites a weakening lending market, rising inflation and weak used car prices.
Overall, the economy has performed relatively well this year. While interest rates are creeping up, they remain at relatively low levels hostorically and GDP growth is still forecast at between 5.0-5.3% for this year. High oil prices continue to dampen growth, however, and the export sector also looks set to weaken significantly. The government is considering a range of fiscal solutions to maintain the momentum in the economy, including an increase in spending.
Demand for smaller, fuel efficient cars, and a shift towards quality has undermined Proton’s position as number one national car company. For the first time ever, Proton has been overtaken by Perodua in terms of vehicle sales, with the Daihastu-owned company selling 79,738 vehicles in the first half of 2006 compared with Proton’s 60,291 units.
Proton has been plagued with vehicle development and supply chain problems for a long time and it continues to struggle with the pace of the new product cycles of its global peers. Excise tax increases introduced at the beginning of the year targeted primarily at key import-based models, such as MPVs and SUVs, have done little to stem Proton’s loss of market share. On the other hand, Toyota saw its first-half sales rise by 7.9% to 42,002 units – its best performance so far in this market.
In the Philippines, recovery in the vehicle market has been dampened by an increase in value-added tax from 10% top 12%, as well high oil prices and interest rates. After a strong start to the year, vehicle sales fell back as the first half progressed with overall sales falling by 3% to 46,231 units. The passenger car market fared modertaely better, with sales rising by 1.5% – helped in large part by a 50% surge in Honda car sales.
The Philippine economy remains strong, with GDP growth in the region of 5.8-6.0% in the first half – driven by the service sector and by strong exports. The government has acknowledged that – faced with continued high oil prices and the potential of slowing exports, it will need to increase spending to maintain current economic growth. With improving tax collection, the government is optimistic it can step up infrastructure investment and attractive additional foreign direct investment.
Tony Pugliese
