With automotive markets in south-east Asia soaring to new records last year, the region’s most successful vehicle manufacturers have been struggling with a problem unfamiliar since before the 1997-98 regional financial meltdown – not enough capacity. Tony Pugliese reports.
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Last year, light vehicle sales in the ASEAN’s top five markets combined exceeded 1.78m units – 21% more than in 2003. Furthermore, the industry is bullish about the prospects for short-term growth in these markets. Toyota Motor expects that both the Thai and Indonesian markets will rise by a further 10% this year and that its market share will rise to 40% and 30% respectively.
Toyota has been reluctant to discuss capacity issues in the region, but insiders unofficially admit that the company is operating at around full capacity in its two best-performing markets – Thailand and Indonesia. In last month’s just-auto feature on Honda Motor, we have seen that this company is in a similar predicament.
Despite the bullish short-term outlook for these markets, both companies have been reluctant, so far, to commit significant investment to fully address the issue. Both companies have limited themselves to making best use of current assets by adding overtime and weekend shifts, adding plant equipment to help speed up production lines and by taking out production bottlenecks where possible.
This apparent reticence to invest is somewhat understandable given that some of the region’s major uncertainties still have to be addressed. For example, Malaysia’s future role in the ASEAN’s automotive sector remains unclear. Also, the Thai government is contemplating a change in automotive policy to promote the establishment of a production base for small cars. Furthermore, foreign exchange markets and dollar pegs have looked increasingly vulnerable in Asia in recent months and the industry also points to the rising cost of steel, oil and other commodities as additional sources of uncertainty.
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By GlobalDataOver the last month, however, reports have emerged in the Japanese press suggesting Toyota may be preparing to tackle the issue full on. Toyota Motor’s capital expenditure budget has already been revised upwards in light of the recent explosive growth of developing markets such as China. The reports published in the Nihon Keizai Shimbun suggest that production capacity will be increased in Thailand to meet the growing demand for vehicles based on the IMV pickup platform, although a decision on whether to build a third plant has not yet been made. As the rollout of the IMV range in the world’s developing markets continues, the reports suggests that Toyota has revised upwards its 2006 forecast for global IMV sales to 700,0000 units.
In the ASEAN Toyota’s new model programme is in full swing. Last year the brand accounted for 27.5% of regional sales, or a little over 489,000 units. This year, the company is likely to sell around 560,000 units, to claim a market share of at least 30%. Other manufacturers are adding capacity in the region, however, including Nissan Motor, Hyundai-Kia and VW, the latter through its recent agreement with Proton. Toyota may well see its market share peak this year.
Toyota’s light vehicle sales and market share in the ASEAN region, 2002-04
2002 % 2003 % 2004 %
Thailand 130,052 31.8 188,748 35.4 234,177 37.4
Indo 84,297 26.5 100,860 28.5 144,941 29.4
Malaysia 27,355 6.3 40,239 9.9 51,700 10.8
Philippines 24,753 28.9 27,821 30.1 29,198 33.1
Singapore 16,304 24.8 24,479 28.4 29,015 27.9
Total 282,761 21.6 382,147 26.0 489,031 27.5
Sources: industry sources
Toyota’s performance in Thailand has been most impressive, having increased its share of the vehicle market from 31.8% in 2002 to 37.4% last year. This year, it is looking to increase its share of sales to 40%, in a market expected to expand by a little over 10% to 690,000 units. The company expects most of its growth to come from its newly launched range of pickup-based vehicles, or IMVs, including the new Vigo truck range, the Innova MPV imported from Indonesia and the Fortunate SUV, made in Thailand.
Last year, the outgoing Hilux pickup and its Vigo replacement accounted for 52.6% of Toyota brand sales, with locally-made passenger cars – particularly the Vios, making up most of the remaining volume.
Toyota sales in Thailand are expected to reach 280,000 units in 2005, equivalent to 20% growth compared with 2004 and representing a stellar performance. A further 150,000 units will be exported – two-thirds of which will be based on the pickup platform. Domestic production volumes in excess of 400,000 will make Thailand Toyota’s third largest production base worldwide after Japan and the USA.
Reports in the Nihon Keizai Shimbun suggest that Toyota has already made a decision on expanding production capacity at its Samrong plant on the outskirts of Bangkok from 250,000 units to 300,000 units this year to meet its immediate sales target. It also seems that a final decision on a third Y50bn plant in Thailand, with a production capacity of 200,000 units, has yet to be made.
In Indonesia – its second-largest ASEAN market after Thailand, Toyota’s market share approached 30% last year from 26% two years earlier. Here, the Innova MPV and the Daihatsu-derived Avanza compact utility vehicle have helped drive the overall market forward and with it the Toyota brand’s market share.
The Kijang and its pickup derivative accounted for 63,710 units – or almost 45% of brand sales last year, compared with 74,260 units, or 73.6%, in 2003. The decline in volumes is largely due to disruption to production from plant retooling in mid-year. Launched in January 2004, the Avanza accounted for a further 31% of Toyota brand sales. On the whole, it was incremental for both brand volumes and for the total vehicle market. Despite having been moved further upmarket, the new Kijang Innova waiting list remans strong – at around four months’ production.
The Dyna truck and the Vios passenger car accounted for most of the remainder of Toyota’s sales in the country. Toyota expects that the launch of the Thai-made pickup based SUV, the Fortunate, will help drive volumes further when it is introduced in mid-year, although pricing will limit sales. Overall, IMV based sales are likely to exceed 50% of Toyota sales this year.
With the exception of the Kijang pickup truck, Toyota now only makes the IMV Innova model in Indonesia – at its plant in Karawang plant. Capacity looks fully utilised at present – with annualised production having been raised to around 85-90,000 thanks to the elimination of bottlenecks and the implementation of overtime and additional shifts. The Karawang plant also makes parts for overseas assembly. The company is tight-lipped on whether additional investments will be made to expand capacity further, and will be monitoring demand trends very carefully.
In Malaysia, Toyota’s market share exceeded 10% for the first time last year, helped by improving pricing conditions for non-national cars, lower costs due to more regional sourcing and strong Unser (Kijang) sales, as well as the launch of the Avanza model. The market overall rose to record levels, allowing Toyota’s volumes to rise by over 21%.
Proton – the country’s first national car company, is finding the struggle to keep up with market requirements increasingly tough and improving economic conditions are driving buyers to consider alternative brands. But competition from relative newcomers has increased, with Kia having been awarded national car status for its Carnival MPV in 2003. Faced with a prolonged slump in domestc sales, Hyundai too has been targeting the Malaysian market more aggressively.
Any moves by Malaysia towards ASEAN integration will benefit in particular Toyota and other Japanese car manufacturers that are well established in the ASEAN. For the moment, the government appears reluctant to remove any of the market protection offered to the national car companies until a future for Proton, or its facilities, can be secured.
In the Philippines, Toyota now accounts for almost two-thirds of the market following strong gains in the last two years. Toyota has diversified its model line-up significantly, with the Vios passenger car now selling in similar volumes to the mainstay Corolla model. Sales of the RAV4 compact SUV have also increased following a change in excise duties to one more based on engine size.
