In the last decade of last century, before the term “BRICs” had even been coined, there was another acronym that loomed large on the agenda of any global automaker. ASEAN, the Association of Southeast Asian Nations, looked like a potential powerhouse for growth. In this month’s management briefing, Mark Bursa takes a look at the region’s automotive prospects. In this instalment, he looks at developments in the major markets with forecasts.
ASEAN market performance and forecasts
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ASEAN has recovered well in the past decade, and while it hasn’t undergone the stellar growth seen in China, the progress has been steady. 2012 was a strong year in the region, and ASEAN sales totalled around 2.5m vehicles. Of this, around 1.5m are cars and 1.0m are commercial vehicles. This is a relatively high penetration for CVs compared to other emerging markets, eg India or Brazil.
Within ASEAN, Thailand, Indonesia, Malaysia and the Philippines all recorded 2012 sales at record levels, thanks to local governments keen to encourage sales with low interest rates and, in some markets, special incentive schemes. The need to grow domestic sales was largely driven by a fall in exports in the ongoing global economic downturn.
Of the five major ASEAN markets (Indonesia, Malaysia, Philippines, Thailand and Vietnam) the growth drivers have been Thailand and Malaysia, with Indonesia emerging as a major player.
In Thailand, first-time buyer incentives exceeded government projections and the market jumped by more than 80% to 1.44m units.
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By GlobalDataEconomic growth in Indonesia exceeded 6.2% last year, driven by rising domestic consumption and investment. The vehicle market continued to benefit from strong consumer demand and low interest rates, with growth expected to continue in the medium term.
Sales in Malaysia and the Philippines will likely slow after the recent strong growth, while Vietnam is likely to post a moderate recovery following successive interest rate cuts over the last year.
Overall, analysts forecast strong mid-term growth Frost & Sullivan estimates growth at a compound annual growth rate (CAGR) of 10% from 2011 to 2018, mainly driven by growth in Thailand and Indonesia. This would almost double vehicle sales in the region to 4.7m units, comprising 3.1m passenger cars and 1.6m CVs – a similar growth projection to India. It would make ASEAN the sixth-biggest automotive market globally by 2018.
Vijayendra Rao, research manager, Frost & Sullivan Asia Pacific Automotive Practice, said none of the ASEAN countries has individually featured in the top ten markets globally, but as a region, it has assumed greater importance following the implementation of ASEAN Free Trade Agreement in 2010.
Indian and Chinese automotive companies are also looking at expanding to ASEAN. Rao said ASEAN was a competitive automotive production base and a net vehicle exporter with strong competency in certain product ranges. “Thailand is expected to continue its dominance as a production hub in ASEAN due to the significant investments by Japanese OEMs, incentives from the Government, a good supply base and required talents,” Rao said.
He also said that production in Indonesia will cater to local demand, mainly driven by the shift of ownership to cars, multi-purpose vehicles and sports utility vehicles from motorcycles.
Thailand
Thailand took a bold decision in the 1980s to open up its car industry to foreign manufacturers, and to establish the country as a global centre for pick-up and utility vehicle manufacturing. This resulted in major investment in the local car industry from US and Japanese vehicle makers. Thailand is now the centre of global production for 1-tonne pick-ups for Toyota, Isuzu, General Motors, Mitsubishi, Ford, Mazda and Nissan.
As a result, Thailand is by far the region’s biggest producer of vehicles, and the biggest overall market thanks to the immense popularity of pick-up trucks. The Thai pick-up market is one of the significant factors behind high CV market share in ASEAN.
Thailand also has the highest levels of localisation – well in excess of 80% – for vehicles built in the country. Malaysia is around 80%, while Indonesia is in the mid-70s. There is a much larger installed supplier base in Thailand, mainly Japanese companies, of which there are around 500, compared to 100 in Malaysia and 160 in Indonesia.
The Thai Government decided in late ’00s to repeat the pick-up incentive plan, this time with small “eco-cars”. Manufacturers were offered incentives to invest in new capacity, including tax-free holidays of up to five years and duty-free import of manufacturing equipment for companies investing in new facilities to produce a minimum of 100,000 small “eco-cars” cars per year for sale domestically and for export.
Again, the manufacturers took the bait. So far, Nissan, Mitsubishi, Honda, Suzuki and Toyota have signed up to the programme, and the Thai government is now looking to extend the investment scheme to attract more automakers, with a view to growing annual Thai output to 3m units.
The Government’s generous first-time buyer incentive programme finished at the end of 2012, but orders placed before the end of the year qualified – and many of those orders were not fulfilled, so strong was the demand. As a result, new vehicle sales in Thailand remained strong in Q1, up 48% to 412,680 against 277,635 in the same 2012 period, according to the Federation of Thai Industries.
Most of these orders should be fulfilled by the end of June 2013, but although new vehicle sales are expected to weaken in the second half of the year, full-year sales may end up at roughly the same level as in 2012.
Malaysia
Malaysian market is relatively sophisticated, and hosts two internationally-known “national car” brands – Proton and Perodua. Proton was launched under the long-running administration of Prime Minister Mahathir Mohamed in the 1980s, as an attempt to emulate Japanese and Korean car companies, which had become established as global brands by this time.
Proton was initially Government-owned and backed, and enjoyed significant tax advantages over imported and locally assembled foreign brands. Technology was sourced initially from Mitsubishi, and production of the Proton Saga, a version of the Mitsubishi Lancer, started in 1985. A second ‘National Car’ programme, building smaller vehicles, was set up in the early 1990s. This company, Perodua, used technology sourced from Daihatsu.
While both brands became established, Perodua is in a stronger position than Proton, which has struggled to re-establish its position following the disastrous economic collapse of the Tiger Economies in the late 1990s. Major expansion plans, including the construction of the so-called “Proton City” manufacturing plant, were delayed. Proton City was originally intended to build 1m units a year; it finally opened in scaled-down form in 2003, but capacity is only 150,000 cars.
The main loser has been Proton. Proton has also lost ground as an exporter – in the 1990s it was seen as a competitive alternative in Europe to brands such as Kia and Skoda, but these brands have raised their game significantly while Proton has been left behind, and after a promising start, Proton has now pulled out of mainland Europe, and has only a token presence in the UK.
Uncertainty over ownership and a long-running search for a technology partner saw Proton’s local share slump to around 26%. Perodua overtook it to become the number one brand in the market with 34%, thanks to continued technology transfer from Daihatsu and its parent, Toyota. Proton was taken out of government control in January 2012 when it was acquired by local industrial conglomerate DRB-Hicom.
The new owners are starting the process of reviving Proton. The company signed a technology alliance with Honda in October 2012, which could make Proton more competitive once again, while deputy chief executive officer Datuk Lukman Ibrahim said at the 2012 Thailand International Motor Show that Proton planned to increase exports in 2013 and restart shipments to Australia and the UK.
He said: “Proton’s exports for this year are in the region of 14,000 units. Next year, we are aiming to sell at least 20,000 units.” He also said Proton intended to ship more cars to Thailand – it sold around 3,000 cars to its ASEAN neighbour last year.
Interestingly, Lukman said the highly competitive Thailand market was the testing ground for attempts by Proton to go global. He said: “If Proton wants to be successful in the future, it must be able to produce global products with global specifications. It must also meet global requirements and regulations and be able to sustain that level up to the services.”
While Proton has struggled, Japanese brands have also gained ground in Malaysia, notably Toyota (13.3% in 2012) followed by Honda (6.9%) and Nissan (4.9%). The other significant local player is Naza, which assembles and distributes Kia and Peugeot cars via a large 140,000 unit CKD facility.
The overall market was 627,753 vehicles in 2012. Sales started briskly in 2013, with a rise of 14% in Q1, but the Malaysian Automotive Association (MAA) expects vehicle sales to reach 640,000 units this year, an increase of just over 2% on last year’s level.
Indonesia
Indonesia has put the grim days of the Suharto regime behind it, and the nation is expected to be a major growth driver in the ASEAN region over the next decade. Indonesia is the fourth-largest nation on the planet, with a population of 230m, though its geography – many small islands covering an area comparable to the size of the US – makes it a logistical nightmare.
Nevertheless, it has already overtaken Malaysia and is growing at a much faster rate, to a point where it will challenge Thailand as the number one market in the region, perhaps as early as this year. Q1 sales in Indonesia grew 18.3%, well ahead of an earlier Frost & Sullivan estimate that full-year domestic vehicle sales in Indonesia will rise by 7.5% to 1.2m this year. Meanwhile 2012 car and CV production rose 27% to 1.065m in 2012.
The Indonesian government wants to export more cars, so it has launched similar incentive scheme to Thailand. The government’s “low carbon emission program” is designed to spur the development of eco-friendly vehicles to include hybrid cars, electric cars and “low-cost green cars”.
Traditionally Indonesia has favoured large cars and MPVs, such as the Toyota Innova and Avanza. Indeed, MPVs account for more than 50% of the Indonesian auto market. Small cars account for less than 10% of sales, so the incentive programme is targeted at a sector with plenty of potential. Also, Indonesian emission standards lag badly behind the rest of the region – Euro 2 is still in place, compared to Thailand and Malaysia, which have now moved to Euro 4.
Fiscal incentives include a reduction of a luxury-goods sales tax for locally made cost-effective green cars (priced below US$10,000) and engines that can run more than 20km on 1 litre of fuel. Overall, the green car Programme is expected to add 100,000 units of production in 2013, though production will continue to cater for domestic demand in the short term. As with the Thai programme, first-time buyers are targeted; these make up around 30% of the market in both countries.
So far, Toyota Motor Manufacturing Indonesia (TMMIN) and Astra Daihatsu Motor (ADM) have announced they would take part in the programme. The two companies last year unveiled their jointly-produced Toyota Agya and Daihatsu Ayla models, which meet the requirements.
Nissan will also participate in the green car project as part of a wider plan to revive the Datsun brand as a low-cost, eco-brand in Indonesia, as well as Russia and India. Nissan is investing US£400 million to prepare for the production start of Datsun models, hiking up the capacity at its existing Indonesian plant five-fold to 250,000 units per annum by 2014.
Honda also seems likely to join the programme from 2014. Japanese brands dominate Indonesia – combined market share is around 95%, with Toyota and Daihatsu claiming more than 50% of the market.
The future
The ASEAN Automotive Federation has worked hard to abolish of tariffs, remove of non-tariff barriers, streamline of customs procedures and harmonise technical regulations. This process has taken time, and is still not complete, but should be finished by 2015.
Theoretically, this should open up the ASEAN market, for example allowing Thai suppliers to export parts to Malaysian producers, in return for finished car imports flowing in the opposite direction.
This should happen to some extent, as well as flow of components from ASEAN’s regional neighbours, India and China, which both have FTAs with ASEAN. But the individual governments of the three main car producing nations are still very keen on promoting their national industries, and competition for new investment from car companies and Tier 1 and 2 suppliers will intensify.
The fear then would be an overheated market, If a repeat of the late ’90s economic crisis should hit, the region will find itself with vast amounts of unused capacity – rather like Proton, which still has not recovered fully fifteen years later.
The other fear is that the Chinese automakers, whose own R&D capabilities are expanding at a rapid rate, will start to target ASEAN with Chinese-produced vehicles, produced at a lower cost and shipped in under the FTA, or even CKD-assembled.
This is already starting: although Chinese cars account for less than 1% of the Thailand and Indonesian markets, some Chery cars are already assembled from kits in Indonesia and Malaysia, while Dongfeng makes small mini trucks in Thailand from SKD kits, with a capacity of 5,000 a year. Thai assembler Naza has assembled small cars adapted from Hafei Motor kits, though these have been relatively unsuccessful.
Meanwhile, Geely has announced plans to establish a factory near Jakarta with Indonesia-based car maker Astra International, with a view to selling cars across ASEAN, exploiting the tariff-free ASEAN FTA.
Indeed, at a recent China-ASEAN Expo in Nanning, Guanxi Province, 10 Chinese auto companies, including Dongfeng, FAW and Jinbei Automotive, showed their latest cars aimed to appeal to ASEAN markets. “China and ASEAN are both newly-emerged, rapidly-developing auto markets. Cooperation in auto industry between China and ASEAN will bring a win-win situation for the two sides and make their cars more competitive in the international market,” said Gu Xiangdong, deputy secretary-general of China Association of Automobile Manufacturers.
The implication for Western automakers, prominent by their absence in the ASEAN market, is that the chance to enter the market may already have gone, and the Chinese will take up whatever slack remains in the markets after the Japanese have continued their expansion.
See also: May 2013 management briefing: ASEAN growth prospects (1)
