Thailand next month is expected to officially launch a new city car project, referred to locally as the "Best Small Car" programme, according to sources within the government. The policy will be designed to establish a new vehicle segment within the Thai domestic market and to increase the country's automotive sector exports.

After more than a year of studying the market and consulting with the global automakers, the government is set to unveil a new package of incentives designed to encourage vehicle manufacturers to create a new high-volume product segment in Thailand.

Thailand is already the largest vehicle exporter in the ASEAN, with exports rising by 41% last year to 332,053 units. Vehicle production last year amounted to 927,921 units, and looks set to exceed 1 million units this year. This is largely down to government's past efforts to establish the country as a major production and export base of one ton pickup trucks. It is now clearly targeting a significant increase in exports to markets in Asia, the Middle-East and Europe in the years to come with the small car programme.

The Thai Automotive Institute, the government body responsible for the development of automotive sector policy, will soon make final recommendations for the specification requirements for the vehicle. These are expected to be largely in line with what has been revealed previously, with the vehicle being larger than 3.6m x 1.63m; meeting Euro IV emission standards, 20km/litre fuel consumption; and a domestic price not exceeding Bt350,000

The Ministry of Industry also looks likely to recommend that excise taxes be limited to 10%, rather than the 30% currently applied to passenger cars sold in Thailand, to help keep domestic prices low. Incentive packages for manufacturers wishing to export the cars are also being prepared. The government wants to replicate the success that India has enjoyed recently in exporting Maruti and Hyundai small cars to Europe and elsewhere. It is also apprehensive about the emergence of China as a major force in the low-cost car segment as that country gains better access to world markets.

The response from the automobile industry has been mixed, however. Suzuki Motor, for example, sees this as a great opportunity to expand its currently negligible presence in Thailand - ASEAN's largest vehicle market. At present, Indonesia is the only vehicle market in the ASEAN in which Suzuki has a sizeable presence - it accounts for around 19% of sales. Suzuki Automobile Thailand Co president, Yoshiaki Tamai, reportedly met with Thailand's Industry Minister Watana Muangsook earlier this month to discuss government incentives for small car production.

Toyota Motor, on the other hand, is not so keen on the programme. With a market share of close to 40%, it has the most to lose. It has also spent a lot of money developing vehicles specifically for emerging markets, including the Vios compact passenger car, the Avanza compact utility vehicle and the Innova MPV. It recently announced a major investment programme for Thailand that includes building a third plant to increase pick-up truck production capacity.

In fact, Toyota Motor Thailand's president - Ryochi Sasaki, is less than supportive of these new policy proposals. He has gone on record as saying that Toyota "has no intention of creating a new segment that has not been demanded by buyers", according to local press reports. Instead, he would like to see existing products such as the Vios and the forthcoming Vitz/Yaris qualify for "Best Small Car" incentives.

Toyota has also said that imposing restrictions on engine size and overall vehicle dimensions would hamper development of future models. TAI has apparently tried to accommodate Toyota's concerns by increasing the maximum width limit to 1.63m, from the previously proposed 1.60m. This was so the new Aygo model jointly produced by Toyota and PSA Peugeot Citroen in Europe could be included in the programme. Even so, Toyota appears less than keen to have government forcing product policy upon it - particularly for overseas markets.

Tony Pugliese