Change of course

Sales of new vehicles in the "Nagoya of Siam" expanded to 271,367 units in the first five months of 2008, as the industry geared up for the launch of the eco-car programme that almost lost its bearings after the emergence of E85 as the cure-all solution to the energy crisis.

In the end, it was the European marques that ended up feeling the effect of the new E85 excise tariffs instead of their Japanese and Indian eco-car counterparts.

A record first quarter of 160,785 vehicles set the tone for the domestic market, marking 16.3% growth year-on-year, before cooling down to 14.5% and 13.4% in April and May respectively. Intense one-ton pickup truck rivalry between the Toyota and Isuzu powerhouses fuelled growth in this segment to the tune of 146,510 units from January to May.

Although global trends and high oil prices have caused a paradigm shift to more fuel-efficient vehicles, analysts believe vehicle ownership will continue to increase from the current ratio of about 125 vehicles per 1,000.

However, the total cost of ownership (TCO) is one aspect that will feature more prominently on consumers' priority lists, leading to a possible decline in sales of gas-guzzlers such as sport-utility and passenger pickup vehicles, according to a highly placed source at the Office of Industrial Economics at the Industry Ministry.

Even used cars will experience some decline in terms of value, as more and more undergo modifications to run on LPG or CNG retrofit systems.

Yet according to data compiled by Toyota, Japanese makes continue to dominate the market with a 92.2% market share.

The first-tier brands or local Big Three - Toyota, with a market share of 41.8%, Isuzu (22.5%) and Honda (12.9%) - controlled more than three-quarters, or 77.1%, of the total vehicle market.

But Toyota Motor Thailand president Mitsuhiro Sonoda cautioned in the first quarter that his 11% growth forecast over last year's volume of 631,250 units, depended largely on external factors in the first half.

Fuel prices have since spiked to more than 42 baht per litre from about 34 baht and could derail the industry's second attempt at 700,000-unit sales mark. The first was achieved in 2005 on record sales of 703,432 units.

Second-tier brands in the overall market were led by Nissan, on sales of 16,184 units, representing a 5.9% share; while analysts believe that a stronger passenger product variety and pickup dealership support will be key ingredients that could catapult the brand into the first tier.

The first-quarter figures are a big improvement from the end of 2007, when all but two of the top-10 brands that included powerhouses Toyota and Honda were in the red, with negative growth rates year-on-year. The only exceptions were Mercedes-Benz, which boasted a growth rate of 14.4%, and Volvo with a 8% increase.

To date, Ford is the lone brand with a 62.8% drop in passenger-car sales over the same period last year.

Chevrolet Sales Thailand president Steve Carlisle's call for a new roadmap on alternative fuels was answered when the cabinet approved a proposal in June to make E85 available in the market, with the Energy Ministry and other key ministries overseeing production and distribution.

Chevrolet is one of the three players, besides Ford and Volvo, which are eager to jump into the E85 market and increase its market presence that stands at 4.0% on sales of 10,899 units at present.

After Mercedes-Benz pioneered the CNG market with the 200 NGT model in the premium segment, Chevrolet followed suit with its CNG-powered Optra sedan, of which sales surged 123% year-on-year; and the introduction of the Chevrolet Colorado CNG dual-fuel pickup, a first for the segment.

The Samak government has not strayed from the automotive blueprint laid out by Kosit Panpiemras, the deputy PM and industry minister in the interim government led by Gen Surayud Chulanont.

In short, the eco-car programme is still going on as planned, with Honda, Toyota, Suzuki, Mitsubishi, Nissan and Tata as the Board of Investment-approved forerunners for the budget car project and Volkswagen lagging a few steps behind.

The eco-car policy carried out by the Industry Ministry was conceived based on the following assumptions: economic growth rate will outstrip the expansion of mass transport, resulting in rising demand for automobiles; traffic jams, air pollution will continue to worsen while raw materials will be harder to find; free trade pacts will cause an influx of imports, hurting Thailand's supporting industries; and lastly the one-ton pickup market is about to peak.

So far the programme is still going forward with the conditions stipulated earlier - fuel consumption at five litres per 100km, the Euro-4 emission standard, 120 grammes per kilometre in CO2 emissions and UNECE safety standards.

It's clear that Thailand's auto industry is betting its future on the eco-car programme, which is why the Board of Investment will have to be generous with investment benefits in order to help the manufacturers lower their costs and expand their export operations.

Shifting gears back to the market, the four-month figures point out to Toyota as the champion in total vehicle sales, one-ton pickup truck, passenger-car and sport-utility vehicle segments.

However, Isuzu will contest in the pickup segment based on its 37.9% market share against Toyota's 38.5%.

The premium passenger car segment is all Mercedes-Benz with a 1.8% share and sixth position overall. Yet a further analysis of the two-million-baht-plus segment has the three-star marque in a similar trend as last year, where it rolled over the competition with a 55.9% market share of the premium segment on sales of 4,024 units.

Passenger-car sales in the first five months ballooned 33.1% to 89,837 vehicles, thanks in part to the E20 excise tax-rate incentive from 25-50%, covering a range of engine displacements from less than 2,000cc and 220hp right up to more than 3,000cc and more than 220hp.

Price discounts of 50,000 to 300,000 baht were realised from the E20 excise tax break despite E20 supply failing to keep pace with demand in the first half.

The opposing political views at Ratchadamnoen Avenue, the possibility of crude reaching US$150 per barrel and high inflation might derail the 11% growth needed to push the domestic vehicle market past 700,000 units. A more realistic target would therefore be 7-8% growth on sales of 680,000 units.

ENERGY & ADAPTATION

In search of the right blend

ALFRED THA HLA

Tiraphot: B5 could save more than E85	Anon: CNG could be a better choice

On the surface, the hasty introduction of the "ideal biofuel" for Thai motorists by the government in the first half of 2008 looks like yet another propaganda exercise concocted by politicians who seized the moment of the day to champion E85 when crude prices soared to uncharted territory.

But is it really another ploy by politicians to garner more public support or a sustainable long-term solution to the country's energy crisis?

After facing public wrath over runaway energy prices, the government announced that it would push for the launch of the E85, to the dismay of Japanese automakers, who have already begun work on eco-car projects, the government's previous pet project.

It then sought middle ground by setting excise tax rates on E85-compatible vehicles on par with E20 ones, at 25% to 35% depending on types, displacements and horsepower.

As the price of premium petrol soared past 40 baht per litre, E85 gasohol, a mixture of 85% ethanol and 15% petrol, will be ready for production and retail sales by October, according to the Energy Ministry.

But the bare facts on E85 are summed up as "the best long-term solution" for Thailand's energy demand in the automotive sector, according to Tiraphot Vajrabhya, chairman of the Shell Group of Companies in Thailand.

The Volvo C30 1.8F is the first E85-compatible model in the market.

Any gasohol specification can be made in Thailand, as one PTT Plc executive puts it: "The government asked us to produce [E20] and we did. Distribution or availability is another matter."

Mr Tiraphot, a retail market specialist and the second Thai to rise to the top post at Shell, agreed that the E85 would help but not within the next three to four years. "I think it's for the long term. If E10-capable cars can be modified to run on the E85, then there will be a mass market for it. But if the new fuel caters only to new cars, then we'll need more time. It's the egg-or-chicken scenario. Oil companies or automakers? We have to look at the supply and demand."

Mr Tiraphot opined that the expected savings from E85 would be almost negligible and probably zero in the first couple of years on a national scale.

While the Japanese camp celebrated the new tax structure, Ford was disappointed that E85 did not receive big enough excise-tax incentives.

Biofuels in Thailand are categorised in two types: a mixture with varying degrees of ethanol (10% and 20%), and a blend of 2% biofuel and 98% diesel or B2. Tax subsidies have made gasohol cheaper than premium petrol by about four baht; and most recently E85 was projected to be 15-20 baht per litre cheaper.

But the use of a lot of farm products for first-generation biofuels means food farm land could be compromised.

On this, Mr Tiraphot said that the government had to carefully weigh the effects on consumers both in terms of food supply and reasonable pricing.

"What worries me is the synergy between the concerned ministries over consumption of biofuels and raw-material availability. Unlike oil, we have communities and the security of supply to think about. It would be better if one ministry such as the Energy Ministry takes over the management of the value chain."

Second-generation biofuels, those made of waste, represents a better alternative because of low CO2 emissions, and no threat to food supply. However, they are still expensive unless Thailand participates in the carbon-dioxide credit programme.

Chevrolet Sales Thailand said the country's dependence on fossil fuels and oil imports could be reduced with the proliferation of E85. In addition, government support for research is imperative and incentives should be considered as a way to promote and encourage the adoption of new technology and fuels.

Anon Sirisaengtaksin, senior vice-president of PTT Plc, argued that natural gas could be a better option.

"NGV service stations are popping up in various parts of the city. NGV seems to be a stronger candidate since its price is only one-fifth of petrol and diesel prices," he pointed out.

Mr Anon said that high oil prices served as a catalyst for further development of biofuels. He cautioned that the move to E85 had to be co-ordinated carefully since even today the crude palm oil supply was still not enough for biodiesel.

However, Mr Tiraphot noted that a move to B5 was the better choice than E85 given a huge number of commercial vehicles in Thailand. "It may be a mere 3% increase from B2 to B5 but the volume will be huge, unlike petrol, so the impact is greater and the price can be subsidised by up to 70 satang per litre."

It remains to be seen whether the E85 will live up to its expectations. What is certain, however, is that by the time the new fuel hits the mass market in October, the Volvo C30 1.8F will be the only model ready to run on it.

ENERGY & ADAPTATION

A shift to greener pastures

ALFRED THA HLA

Contrary to popular belief, the emergence of the ecocar programme as the country's second product champion will not cannibalise the one-ton pickup truck market.

The future of this soon-to-peak segment will depend on more efficient technology with greater product lineup variety.

On the other end are its larger commercial siblings - two- and three-ton, 3.5-ton and more, and buses - which play a low-key but vital logistic role in sales that accounted for about 3.6% of total vehicle sales last year, according to information compiled by Hino Motor Sales Thailand.

According to the Industry Ministry, declines in sales of sport utility vehicles (SUVs), passenger pickup vehicles (PPVs) and 4x4-based pickups are foreseeable.Manufacturers such as Toyota, Isuzu and Ford are aware of this trend and have begin making moves to counter it with more fuel-efficient 4x2 products - even if they still look like high-rise versions of 4x4 vehicles.

Last year, sales of large trucks were 22,771, up 1% over last year's mark of 22,593. Despite the weakening real-estate and construction sectors, the truck segment bucked the trend with the 1% growth amid total vehicle sales of 631,250 units, dropping 7.5% when compared to 2006 figures.

Apart from 2007, the previous four years (2003-06) saw the truck sector peg its growth to the total vehicle market, at 18,853, 23,594, 23,954 and 22,593 units respectively.

The core segment of the large truck segment is made up of trucks in the 3.5-ton or more category. Last year, 15,670 trucks in this segment were sold, with Hino at the forefront with a 43% market share, followed by Isuzu at 40%.

The smaller trucks in the two- and three-ton category are dominated by Isuzu, with a 64% share, followed by Hino and Fuso, with 18% each.

Buses are a small market: 491 units sold last year. Volvo leads the segment with a 27% market share and Hino at 25%.

In the first four months of this year, sales of trucks were 6,488 units, down 9% from last year (7,093 units).

High oil prices have not deterred manufacturers from forecasting a positive 6.7% growth rate over last year to 24,300 trucks by the end of the year.

Isuzu leads this year's truck market with 43%, followed by Hino at 38% in the first four months, a trend that is most likely to continue by the end of 2008.

The key challenge for Japanese truck manufacturers is its ability - or willingness - to adjust their production lines and introduce natural-gas engines as more cost-efficient alternatives for customers.