Growth in new vehicle demand
in Asia’s developing economies is heading for a sharp slow-down in the coming
months, as the impact of high oil prices and related inflation filters through
into the region’s economies. Weakening currencies in the region, and in some countries
rising interest rates, are adding to the growing unease. Growing political uncertainty
in countries such as the Philippines, Thailand and Taiwan are also having an impact
on consumer and business confidence, and the fragile recovery in vehicle sales
in these markets is coming under increased pressure. The prospects for global
growth are also becoming more uncertain, as the US attempts to prevent its economy
from overheating. But stronger domestic demand in Japan will offset some of the
impact of lower US economic growth on Asia.

MotorBusiness-Asia.com is
forecasting vehicle sales growth in the countries surveyed [see table below] to fall to 9% in 2000, after growth of 26% in 1999 as many crisis-hit markets
bounced back from depressed levels. Volumes in Asia’s developing markets dropped
below 4m units in 1998. For many countries, strong growth in the first half
of 2000 has been replaced by a slowing trend in the second half, particularly
in the last quarter. Ironically, it is in Thailand once again where we have
seen the first signs of a slowdown, with growth weakening in the third quarter
of 2000.

Sales in China expected
to outperform, driven by car demand

We expect weakness will
continue into 2001, with sales volumes in the region to remain almost unchanged.
Some countries will see an actual decline in sales volumes next year, as some
of the negative factors are worked through, though nothing like the drop in
sales we saw during the regional economic crisis. We expect China, Asia’s largest
vehicle market outside Japan, to continue to grow, however, with passenger car
sales leading this trend as the country emerges from two years of deflation.
As the urban middle-income earners increase in numbers, the private sector is
fast overtaking government and state-owned enterprises as the main buyers of
cars. New model launches and improved access to finance will continue to fuel
demand.

Recovery in Malaysia
also strong

Another bright spot is Malaysia,
which is enjoying a strong export and manufacturing-led economic revival and
continues to be sheltered from outside instability by exchange rate controls.
The vehicle market continues to strengthen significantly, and new domestic models
are entering the market which will help drive demand further. We are forecasting
ongoing recovery in Malaysia’s vehicle market, and new record volumes are expected
from 2002. More uncertain is the future of Proton. In spite of its bold attempts
to re-invent itself and generate intellectual properties, it is very small on
a global scale and is unlikely to survive without ongoing domestic market protectionism.

Turmoil expected in South
Korean vehicle market

Undoubtedly one of the most
uncertain markets is South Korea, where corporate bankruptcies are increasing
under the weight of their heavy debts. Corporate restructuring seems to be accelerating,
which in the long term is positive. But the short-term effects on sentiment
will be significant. Rising fuel prices and inflation, and a depreciating won,
are also dampening confidence in the economy. With creditors having withdrawn
support for Daewoo Motor, the market may be in for a very bumpy ride. It is
impossible to know at this stage what will happen to Daewoo Motor, whether foreign
bidders come in and pick up individual assets, or indeed if the government decides
to nationalise the company. If prolonged plant closures take place, or if component
suppliers are also forced out of business, both of which are very likely, then
we may see a much sharper decline in vehicle sales in the short term than we
have forecast. Hyundai-Kia will continue to benefit as Daewoo struggles to keep
operations going, however.

Summary
forecasts: vehicle sales in Asia by country, 1996-05

..
1996
1997
1998
1999

2000*
2001*
2002*
2003*
2004*
2005*
China
1,512,895
1,579,693
1,633,575
1,847,922
1,909,500
2,029,500
2,124,700
2,194,700
2,275,000
2,330,000
India
696,000
728,665
614,858
826,884
854,586
828,400
873,970
915,000
955,000
980,000
Indonesia
337399
382,201
58,317
94,890
255,310
278,720
300,415
321,510
337,500
351,000
Malaysia
364,789
405,087
163,851
288,547
346,369
375,155
416,830
449,775
456,000
477,000
Philippines
162,095
143,814
80,037
74,097
77,905
88,950
101,080
113,540
119,000
125,000
Singapore
34,256
34,766
37,520
49,512
71,530
59,190
53,805
54,140
57,000
59,000
S.
Korea
1,644,132
1,512,935
741,152
1,170,635
1,199,908
1,104,300
1,180,200
1,270,200
1,405,000
1,490,000
Taiwan
465,219
472,219
466,871
416,297
450,000
464,000
472,000
480,000
475,000
472,000
Thailand
585,958
358,835
144,087
218,372
219,540
236,770
268,940
297,530
330,000
370,000
Vietnam
10,401
8,841
8,647
9,907
14,965
16,395
17,195
17,610
18,250
18,900
Total
5,813,144
4,114,123
3,948,915
4,997,063
5,399,613
5,481,380
5,809,135
6,114,005
6,427,750
6672900

Sources:
industry sources; *forecasts by MotorBusiness-Asia.com

The political crisis in
the Philippines will likely reverse the tentative recovery that we have seen
in the first nine months of 2000, as consumer and business confidence is eroded
and as foreign investors become increasingly wary. A speedy resolution to the
current leadership crisis, and a subsequent reversal of the recent interest
rate hikes may limit the damage. We cannot be certain of this, however. In Indonesia,
political instability has become a way of life and the economy continues to
recover regardless – mostly under its own steam. High oil prices have helped
swell the country’s trade surplus to over $28bn. The depressed rupiah is a problem,
however, and corporate restructuring has been painfully slow. We are expecting
a fall in monthly sales volumes from here in the short-term, but overall demand
remains strong – fed by new models and lower tariffs. Sharp increases in oil
prices and inflationary pressures are also affecting sentiment in India, and
with car sales at record volumes at present, we are forecasting a slowdown in
the next six months. But underlying demand for cars will remain strong and we
expect growth to resume into 2001.

© November 2000, MotorBusiness-Asia.com

MotorBusiness-Asia.com
undertakes auto industry analysis and research in Asia.
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