Mid-Year Economic Review 2002

AUTOMOBILES

Steering well out of trouble

Santan Santivlmolnat

The auto industry's roller-coaster ride after the slump in 1997 is just about over, with the market shifting into cruise control to assume its much-touted position as the regional hub for both vehicle export and assembly operations.

AUTOMOBILES

Reviving steadily from a plunge deeper than many had expected, the auto industry is now leaner and more focused

Statistically, economic woes savaged car sales over the past five years. The domestic market wrapped up 1996 with total vehicle sales of 589,126 units, only to see a regional financial crunch shave that record haul by 39.4% to 363,156 the following year.

While some observers nonchalantly expected the blip to be short-lived, a series of factors caused a 60.3% fall in the vehicle market to 144,065 units in 1998.

These factors were higher car prices and increased import taxes due to the International Monestary Fund's bail-out of the economy. The floating - in practice, sinking - of the baht sent prices of imported cars throgh the roof while the suspension of 58 finance companies slammed the brakes on consumer access to automotive credit and leasing.

Consecutive growth years of 51.5% in 1999, 20.1% in 2000 and 13.3%$ in 2001 brought last year's vehicle sales to 297,052 units.

This year's forecast is 390,000 units, a 30% growth rate, according to Ford. A conservative estimate of 350,000 units has been made by Toyota.

Goro Shintani, the president of Tri Petch Isuzu, said the Thai market's 51% recorvery rate to date against its highest volume in 1996 ranks thrid among the Asean Big Four markets - Malaysia (97.9%), Indonesia (77.7%) and the Philippines (47.7%).

"Isuzu Motors and Mitsubishi Corporation firmly believe in the economic recovery of Thailand," Mr Shintani said.

Isuzu's entire pickup production base will be in Thailand by next year with Isuzu Operations Thailand as the exporter to 130 countries worldwide.

Looking back on the past five years, the economic downturn's impact on the automotive industry was a blessing in disguise for both the consumer and pickup truck manufacturers in general.

The Toyota FXS, a concept car with a V8 engine, was among many novelties at the motor show in Bangkok in March.

From a global perspective, all major automoive powerhouses were linking up or joining forces, for example, Daimler with Crysler, Nissan with Renault and Ford with Volvo, to achive organiseational streamlining and synergy in production and administration.

The trickle-down effect eventually reached Thailand with all those in the industry seeing the need to change marketing practices, personel, promotional schemes and position products more clearly in the rmarket.

Mike Pease, the executive director of Ford Sales & Service (Thailand), agreed that the automotive sector was one of the first to feel the brunt of the economic downturn.

"We studied Mexico which had a similar crash in the 1990s and the recovery took about a decade. Thailand will recover more quickly by 2005.

He said the downturn had benefits for Ford's dealerships by creating a three-pronged focus on providing a level of supoort that had not exised earlier, promoting cost awarness and use of local content.

Before 1997, pickups were mere "workhorses" with mediocre and similar features despite giving Thailand status as the world's largest market for one-ton pickup trucks.

Fast-forward five years and the "workhorse" has added safety features and has been transformed into a double-cab with increased functionality.

Another change is in the core market for passenger cars.

Quality controllers inspect the paint on an Alfa Romeo 156 at the Rayong plant.

"The major car market is now in the one-million-baht price range such as the Camry, Cefiro or Accord. Consumers have moved up a notch. Another change is the emphasis of sellers shifting to customers in the agricultural sector while your basic salaryman has faded away due to layoffs," said Patanadesh Asasapakit, president of the Thai Automotive Journalists' Association.

The once all powerful status of the "sole distributor" gave way to parent companies stepping up their presence and instilling consumer confidence with grand manifestos of improved aftersales service, dealerships and new management.

Both pickup truck and passenger car segments have made progress with last year's sales of pickups gradually working their way up to 48.4% (158,639) of their peak volume of 327,663 units in 1996.

Passenger car sales stood at 60.5% (104,502) of the record 172,730 units sold in 1996.

Small-car rivalry (Honda City vs Toyota Soluna) in 1998 boosted car sales to 66,858 units from a low of 46,300 the previous year while a similar scenario in the pickup segment is developing this year with powerhouses Isuzu and Toyota taking centre stage with the Isuzu D-Max and Toyota D-4D pickups.

This year, the pickup truck market posted a 38.6% increase in sales for the first four months when compared with the same period last year.

When the recession started, carmakers shifted their emphasis to automotive exports. Apart from Mitsubishi and Ford, the country's top two automotive exporters, other brands joined the fray.

Toyota, the perennial leader in overall sales exported only 1,819 assembled units in 1998 but its decision to move its entire pickup operations to Thailand will eventually see Toyota ship 100,000 vehicles annually.

In 1998, automotive exports grew by 64.4% to more than 34 billion baht when compared against 1997 figures.

Mitsubishi dominated exports with a 91.1% share or about 26.3 billion baht.

In 2000, automotive exports grew to 82.1 billion baht. Mitsubishi exported CBU vehicles and parts worth about 29.4 billion baht for 41.5% share of total auto exports, while newcomers Ford and Mazda claimed a combined share of 32.7% or 23.3 billion baht.

President Karsten Engel and BMW Thailand sales staff toast the successful end of the 10-day Bangkok International Motor Show in April, during which the company said it had exceeded its sales target.

This emphasis on export markets also forced manufacturers to look at their quality while creating economies of scale on the production side.

What hasn't changed in the past five years is the dated vehicle tax system which could put Thai auto products at a disadvantage against those of Asean counterparts under the Asean Free Trade Area (Afta) scheme.

The Finance Ministry is walking a thin line between finding ways to put cash into its coffers and forcing car makers to leave for greener pastures.

However, analysts note that the presence of Industry Minister Suriya Juengrungruangkij is positive for the industry, despite his being criticised as a scion of the Juengrungruangkij and Chularngkoon families who control an auto parts empire estimated to be worth 80 billion baht.

Although the view that car companies will move out of Thailand, due to the dated and complex vehicle-tax system, has been blown out of proportion, it is clear that Thailand is primarily a one-ton pickup truck market, which is why there are a growing number of carmakers moving their small-car assembly lines outside of Thailand for cost-effective reasons.

Ford plans to use the Aico (Asean Industrial Co-operation) scheme by moving the entire Ranger production line to Thailand while the Philippines will make the entire Tierra (Ford Laser) small-car range.

"This has to be agreed on at both company and government level before implementation. Savings on tooling costs will be realised, one for each market,"a Ford executive said.

With a sales total of 116,638 units for January to April this year, a 34.1% increase on the same period last year, Thailand will look forward to asserting its regional leadership in the industry.

Analysts expect Thailand's vehicle industry to achieve average annual growth of 15-20% for the next three years, easing to 5-10% in the following years.

While it wasn't enjoyable for high-rolling financiers reduced to sandwich vendors and taxi drivers, the slump has benefited the auto sector, which is making a comeback leaner and better focused than before.