The industry is on course to grasp the `Detroit of Asia' mantle and position Thailand as the world's ninth largest vehicle manufacturer by 2010 but some challenges such as the lack of qualified engineers need to be addressed first

by ALFRED THA HLA

Momentum to continue

Carmakers showcased various models at the Bangkok International Motor Expo in December.

On paper, the booming vehicle industry isn't looking back as it closed out 2004 on course to achieve its best year in local automobile history.

According to 11-month statistics compiled by Toyota, the overall market recorded sales of 552,773 units, a 17.9% increase over the same period in the previous year. Passenger car sales were up 18.9% and one-ton pickup trucks 19.9%. Sales of sport utility vehicles (SUVs) shrank by 25.7%, owing to a revised tax regime and a lack of product variety.

The data underscore the sector's resilience in the face of obstacles that have included terrorism, volatile oil prices and political uncertainty on the domestic front.

However, should an economic downtrend surface again, industry leaders say they have prepared themselves for a worst-case scenario.

Overall vehicle sales are essentially the fiefdom of three brands _ Toyota (37.6%), Isuzu (24.1%) and Honda (11.6%) _ which have a combined 73.3% share of the domestic market.

In the pickup segment, a fierce duel between Isuzu (38.1%) and Toyota (33.4%) is taking place while the passenger car segment is dominated by Toyota (50.3%) and Honda (33.3%).

The SUV segment is led by Ford (30%) and Honda (20.9%) but the latter only recently came out with its second generation CR-V while Ford relies on its three-pronged offensive of the Ford Explorer, Everest and Escape models.KEY POLICIESThe government's progressive stance on the auto industry has paved the way for Thailand to legitimise its status as the "Detroit of the East" but more importantly, it has given rise to a goal of making the country the ninth largest vehicle manufacturer in the world by 2010.

However, despite attempts to highlight the plight of Thailand's supporting industries, which could well become the second or third backbone of the auto industry, parts and component manufacturers still need to spruce up their act in terms of quality, cost-effectiveness and developing a competitive edge in order to be players at the international level.

The revamp in 2004 of the vehicle tax structure, albeit with a grace period for the industry to adjust, was probably a milestone achievement in itself. Cosmetic as it may be, the adjustment was monumental in that the changes were actually made to what many contended was a "dinosaur" approach to taxing vehicles.
And for once car prices actually dropped. Toyota cut 38,000 baht from the price of its Avanza and 80,000 from the 2.0-litre Wish; the Honda Jazz declined by 37,000 baht and the Stream by 86,000 baht; and the Nissan Sunny is now 50,000 baht cheaper.

However, SUVs (especially the luxury bracket) were another story, with the excise tax rising to 50% from 29%.

In short, complex categories still exist and tax rates are still being debated.

Another key policy that won many fans was the "Best Little Car" project, which the government hopes will be a boon for both manufacturers and consumers. A whole new segment is about to be created, which translates into new production lines and more sales for the car companies and more affordable vehicles or the consumers.

The signing of free trade area agreements has received mixed reviews. They delineate the strengths and weaknesses of Thailand's component industry, [H]Wanted: qualified engineers

THAI KOITO Co Ltd, the largest manufacturer of automobile lighting equipment in Thailand, is supremely confident in the Thai economy due to the country's legitimate status as a regional production hub for one-ton pickup trucks.

But it has voiced concern over the shortage of quality engineers, which is a key ingredient in maintaining industrial competitiveness.

Established in 1986 as a Thai-Japanese joint venture with registered capital of 365.2 million baht paid in full, Thai Koito's core business is the production and sale of automotive lighting equipment for both the domestic and export markets. Koito Manufacturing is the majority shareholder with a 61.75% stake while the remaining stakes of 25.5% and 12.75% are held by the Leegomonchai and Changkajonsakdi families (B.D.I. Group) respectively.

The company's sales reached 2.475 billion baht in 2003, up 6% from 2002. It has only posted negative growth one year, during the regional financial crisis in 1998 when sales dropped 35.2% to 506 million baht.
Primary customers in the original equipment manufacturer (OEM) market include Toyota, Isuzu, Nissan, Mitsubishi, Ford, Mazda, General Motors, Hino, Honda, Chrysler and all four major motorcycle brands (Honda, Yamaha, Suzuki and Kawasaki).

"I believe in the future because every carmaker (for pickups) has shown commitment to Thailand's regional hub status," said Thai Koito president Koichi Katase.

"It's a good situation for component makers like us. Thai consumers have the spending power and I am sure that the economy will not shrink as [some have] suggested."

Armed with three state-of-the-art production facilities that cover a total area of 33,773 square metres at the Bang Phli industrial estate of Samut Prakan, Thai Koito's two-shift schedule focuses on plastic injection, surface treatment and assembling of lighting equipment.

Raw materials sourced locally account for about 60% of the total with the rest coming from Singapore and the company's home base in Japan.

However, high-technology lamps such as the ones used in the Camry are made in Japan.

Asked to comment on what homework lies ahead for Thai Koito, Mr Katase said: "My first concern is the lack of engineers here. The second challenge for me is to elevate our company to be on par with Denso or Nipatsu, both of which have 40 years of tradition as opposed to our 14 years."

Thai Koito's sales arm was established in 1986 while production began in 1990.
"It is crucial that we enhance the management skills of Thai engineers in general. They lack experience, especially in the area of kaizen, which is an ongoing improvement that has an upward-spiralling direction for optimal results. Thais must be responsible for kaizen but I understand that their culture and way of thinking differ," Mr Katase said.

He noted that should the domestic market slow down, Thai Koito should be able to counter any negative scenario as 50% of its total production goes to export markets such as Spain and other key European destinations.

Thai Koito's international presence _ Koito Europe, India Japan Lighting, Ta Yih Industrial (China), Shanghai Koito Automotive Lamp (China), Inhee Lighting (China), Koito Manufacturing (Japan) and North American Lighting _ allows it to respond to customer needs and capitalise on new business opportunities.

Key products of Thai Koito are fog lamps, aerodynamic headlamps and signal lamps, room lamps for interior cabins, signal lamps and rear combination lamps for automobiles. Also included in its product line are front and rear combination lamps for motorcycles.

However, Thai Stanley Plc leads in the motorcycle segment while Koito is second.

especially the pact with India which shows that cheap labour, raw materials and expertise in design capabilities are not a forte of Thailand alone.

However, new markets such as Australia are also being created, which means revenue for both government coffers and manufacturers in general.

RISKS
Complacency is the key word for the industry and players involved.
Imagine a scenario where China is tickled pink with the one-ton pickup truck as a personal ride instead of a commercial vehicle. Where will that leave Thailand?

The players involved can always pack up and start marching toward the Great Wall even though billions have already been invested and spent in China by others. If they can relocate from Japan to Thailand, who's to say that an epic emigration from Thailand to China won't occur?

That's just the worst of the worst-case scenarios, but remember how BMW recently dropped the Rover brand like a hot potato? It's now in Chinese hands.

To put things into perspective, if it's cost effective and profitable they will do it. But on the brighter side of things, China still views the one-ton pickup truck as a cargo-hauler.

Another risk to consider and a priority for the Education Ministry to deal with is the lack of engineers. The number of engineers as a proportion of the overall population is a crucial statistic that many would agree is a key factor driving any national economy and sustaining a growth level based on technology and industrial know-how.

Thailand is slipping in this category, with the number of engineering graduates dwindling as the years pass. Qualified engineers would rather work for a large conglomerates such as Siam Cement than small auto parts companies, if the preferences of Chulalongkorn University engineering graduates are a guide, said one component manufacturer.

FUTURE CHALLENGES

Thailand's auto industry faces many challenges: competition from its regional neighbours; a potential influx of Chinese products (a scenario seen in the Vietnamese motorcycle market a few years ago); increasing quality and adding value to locally made components to enhance cost-effectiveness; creating a business environment conducive for foreign investors; improving transport and communications infrastructure to accommodate vehicle industry growth forecast to reach one million units by 2010; upgrading supporting industries to first tier status, which could become another backbone for the auto sector; and developing new export markets through FTA pacts.

In short, policymakers and industry leaders have a full agenda. They cannot be complacent despite a recent influx of foreign direct investment channelled by powerhouses such as Toyota, Isuzu, Mitsubishi, Ford and Mazda.

Growth figures speak for themselves and the potential is there, a fact that hasn't been ignored by automotive companies. This is why they have stepped up their presence locally by shifting authorised distributorships previously held by Thais into the more efficient and professional management by parent companies.

Working as a team to create synergies is the key to achieving the goals set for the auto industry. The mere fact that the Thaksin Shinawatra government is almost certain to return to power after the next general election gives some reassurance to foreign investors that the policies and action plans set forth will continue to instill confidence in both the market and the players involved.

More than just a `paper tiger'

IN ITS infancy the Thailand Automotive Institute (TAI) _ spearheaded by executive director Vallop Tiasiri and a handful of highly experienced Japanese consultants from the auto industry _ was expected by many to be a "paper tiger".

Enter the Thaksin Shinawatra government and its proactive stance toward Thailand's automobile industry and the TAI is suddenly catapulted into the limelight as an important link and intermediary between the private and government sectors.

Now, all grand manifestos proclaimed by political technocrats, large-scale projects and master plans for the automobile industry involve the TAI.

"I'd have to break down the future into two phases. First is the period of 2001-06 which is a recovery period focusing on the industry's ability to use up its production capacity of one million units which back then didn't even reach half of the available capacity. The next phase is 2006-10 with a proposed goal of 1.8 million units as our production target." Mr Vallop said.

The optimal size and the general trend in capacity for vehicle factories is 100,000 units per year.
But Mr Vallop hopes to encourage 300,000-unit factories at Toyota, Isuzu, General Motors, Mitsubishi, Nissan, Ford and Honda _ all of which would allow the industry to realise 1.8 million units of production annually and a top-10 ranking among the major automobile powerhouses in the world.

He added that if the 1.8-million unit strategy were to be achieved, the future of Thailand's auto industry would be sustainable and it "would be better forever".

Two key strategies or action plans that will kick-start Thailand's future involve creating a business environment that is conducive for both local and foreign investors, and creating value-added premiums for locally made components.

"The revision of the vehicle tax structure by Finance Minister Somkid Jatusripitak to enhance the industry's capability was a start," said Mr Vallop. "The FTA agreement signed with Australia created new markets.
"Creating value-added premiums for locally made components is crucial in gaining an edge in price competition and this can be achieved through pooling the resources of our component manufacturers. We need synergy by sharing our resources in areas such as purchasing, testing, R&D, information, cluster development and marketing of our supply chain. And this is what will be proposed to the Ministry of Industry."
As well, he said, the TAI would propose to the Education Ministry ways to improve the quality and increase the quantity of automotive engineering graduates.

Asked to comment on risks, he said: "It's as simple as high-risk, high-return. The auto industry is a multi-billion-baht investment that involves large profits if manufacturers achieve their respective break-even points. This scenario was never seen before in the past but since the 1997 financial collapse the negatives have turned into positives.

"If our automotive strategies are played correctly, and with China in the WTO and signing FTA agreements, the risk of goods overflowing into the Asean markets could transform Thailand into a seller instead of a buyer. Within the next three years, it is crucial that we work as a team. We are still learning and the potential is there due to the ongoing technological transfer. The key word is to work together." The TAI views Thailand as a global niche instead of a global mass-market provider due to the pickup production base, which could be joined by the small car or "Best Little Car" project to form two backbones for the automotive sector.

Thus, the transformation of Thailand from a "CKD factory" into an international player with quality products is a key challenge that the TAI is looking forward to.

An edge over Toyota

Isuzu expects the Thai auto industry's total domestic sales to exceed one million units by 2010.

TRI PETCH Isuzu Sales Co (TPIS) is one company that embodies the true essence of the "David versus Goliath" tale.

It has earned the rare distinction not simply because Isuzu has dominated Thailand's commercial vehicle sector for 23 consecutive years or sold the most one-ton pickup trucks in the country's auto industry history. But rather, it is due to the fact that Thailand is the only commercial vehicle market in the world where Toyota, the world's third largest vehicle manufacturer and the perennial overall market leader in Thailand, has failed to beat Isuzu.

In fact, not many people knew of Isuzu outside Thailand until now.
TPIS president Goro Shintani's perspective on the future of the Thai economy represents the general sentiment of the auto industry.

"We believe the Thai automobile industry will experience steady and robust growth levels although there will be some zigzagging along the course of the growth path," he said. "We expect total domestic sales to be over one million units by 2010 (against about 600,000 in 2004) while yearly production will be approximately 1.5 million units including exports."

Established in 1957, Tri Petch Isuzu today has registered capital of three billion baht and eight affiliate companies within the group.

The current industry report card has Isuzu on top of the one-ton pickup truck segment, which is the bread-and-butter of Thailand's automotive sector. Total sales for Isuzu in the first 11 months of this year were 122,476 units, giving it a 38.1% market share of the pickup segment. Toyota is second at 107,353 units, or 33.4%.
On managing risks for the future, Mr Shintani said: "Both Isuzu and the Thai government have learned tough lessons from the 1997 economic crisis and they are well-prepared for future depression and the possibility of a crisis, which we believe will not happen in the same magnitude as that of 1997 since the government is now managing the national economy with better methods."

Isuzu's top priority will be future investment in the hopes of expanding production capacity in preparation for the expansion of the domestic and overseas markets.

"We expect the Thai government to implement effective measures that will encourage foreign investment, which includes a review of corporate income tax laws. In addition, the government should encourage the auto industry to focus its resources on Thai-made vehicle exports," Mr Shintani said.

He added that policymakers should continue to keep current policies intact since Thailand had now become the export base for almost all pickup brands, thanks to the implementation of successful initiatives.
Isuzu is currently in the process of utilising the Asean Free Trade Area (Afta) scheme but it laments the fact that not all Southeast Asian countries (notably Malaysia) are actively participating in the agreement.
"Thai government leaders should expedite the measures needed to connect the missing link in Afta for the benefit of the Thai automobile industry and the region."

On China, Mr Shintani said: "China is regarded as an opportunity for Thailand, not a threat. In this perspective, we will have challenging business opportunities in China, which will become the largest automobile market in Asia in the years to come. Millions of vehicles will be produced in China, which serves as an opportunity for Thailand to export high-tech automobile components."

More than just a `paper tiger'

IN ITS infancy the Thailand Automotive Institute (TAI) _ spearheaded by executive director Vallop Tiasiri and a handful of highly experienced Japanese consultants from the auto industry _ was expected by many to be a "paper tiger".

Enter the Thaksin Shinawatra government and its proactive stance toward Thailand's automobile industry and the TAI is suddenly catapulted into the limelight as an important link and intermediary between the private and government sectors.

Now, all grand manifestos proclaimed by political technocrats, large-scale projects and master plans for the automobile industry involve the TAI.

"I'd have to break down the future into two phases. First is the period of 2001-06 which is a recovery period focusing on the industry's ability to use up its production capacity of one million units which back then didn't even reach half of the available capacity. The next phase is 2006-10 with a proposed goal of 1.8 million units as our production target." Mr Vallop said.

The optimal size and the general trend in capacity for vehicle factories is 100,000 units per year.
But Mr Vallop hopes to encourage 300,000-unit factories at Toyota, Isuzu, General Motors, Mitsubishi, Nissan, Ford and Honda _ all of which would allow the industry to realise 1.8 million units of production annually and a top-10 ranking among the major automobile powerhouses in the world.

He added that if the 1.8-million unit strategy were to be achieved, the future of Thailand's auto industry would be sustainable and it "would be better forever".

Two key strategies or action plans that will kick-start Thailand's future involve creating a business environment that is conducive for both local and foreign investors, and creating value-added premiums for locally made components.

"The revision of the vehicle tax structure by Finance Minister Somkid Jatusripitak to enhance the industry's capability was a start," said Mr Vallop. "The FTA agreement signed with Australia created new markets.
"Creating value-added premiums for locally made components is crucial in gaining an edge in price competition and this can be achieved through pooling the resources of our component manufacturers. We need synergy by sharing our resources in areas such as purchasing, testing, R&D, information, cluster development and marketing of our supply chain. And this is what will be proposed to the Ministry of Industry."
As well, he said, the TAI would propose to the Education Ministry ways to improve the quality and increase the quantity of automotive engineering graduates.

Asked to comment on risks, he said: "It's as simple as high-risk, high-return. The auto industry is a multi-billion-baht investment that involves large profits if manufacturers achieve their respective break-even points. This scenario was never seen before in the past but since the 1997 financial collapse the negatives have turned into positives.

"If our automotive strategies are played correctly, and with China in the WTO and signing FTA agreements, the risk of goods overflowing into the Asean markets could transform Thailand into a seller instead of a buyer. Within the next three years, it is crucial that we work as a team. We are still learning and the potential is there due to the ongoing technological transfer. The key word is to work together." The TAI views Thailand as a global niche instead of a global mass-market provider due to the pickup production base, which could be joined by the small car or "Best Little Car" project to form two backbones for the automotive sector.

Thus, the transformation of Thailand from a "CKD factory" into an international player with quality products is a key challenge that the TAI is looking forward to.