E10 policy a good start, says Ford's Mr Felice.

Soaring oil prices have huge ramifications on the domestic car market because of a potential paradigm shift of consumer purchasing in the major segments of the auto industry.

Smaller engines and diesel oil burners are becoming the choice of motorists while the affluent can still afford gas guzzlers and premium makes.

Diesel is now sold at a tad over 20 baht per litre thanks to the government's dieselprice subsidy _ a scheme that is now being phased out but has resulted in an accumulated debt of nearly 90 billion baht. Demand for cheap diesel persists from automotive powerhouses (and the general public), amid fear of repercussions on consumers, onetonne pickup truck users in particular.

That said, it looks like another healthy harvest time for new vehicle purchases, expected to reach about 690,000 units by the end of the year, of which approximately 420,000 or 60% are pickup trucks.

Toyota Motor Thailand president Ryoichi Sasaki said "Sales will drop slightly in the first four months but shortterm growth is still strong for Thailand and the rest of the Asean markets while midterm growth will mark a comeback for the market".

Market growth will still come from a 22.9% increase from pickups, a 24.1% rise in the medium and large truck segments and a 35.5% surge in the van segment _ averaging out to a 22.8% increment in the commercial vehicle market. Passenger cars dropped 13.1% while SUVs doubled yearonyear, which leads to the assumption that a demand shift has occurred from passenger cars to SUVs (sport utility vehicles).

Tri Petch Isuzu Sales president Ryo Sakata said this year's 13.8% increase in the first five months was lower than last year's 24.03% growth over 2003.

BigThree nameplate Ford, the country's largest exporter of pickups, is slightly more conservative, with a 680,000unit forecast by the end of the year. Ford is also cautious about the GDP rate slowing down slightly but favours a stable GDP rate of 5% to 6%.
"We still expect the market to absorb demand of about one million units by the end of this decade. From an economic standpoint, the market is still very competitive, with lots of products and a constant change in market dynamics. We will also see shifts in hot products such as the B, C and D vehicle segments," noted Ford Operations (Thailand) president John Felice .

"On oil price, it's hard to get a pulse but I am sure that it will not go down. There won't be a crash but this might heighten consumer awareness for fuel economy. The E10 government policy is a good start and I hope E20 will follow very soon," added Mr Felice, referring to the government's energyconservation policy of promoting the use of E10 fuel (10%ethanol blended petrol) and in the future E20 fuel (20%ethanol blended petrol).

Although small gains have been made in sales of "green vehicles" such as hybrid MPVs (multipurpose vehicles), this indicates a positive direction taken by the government, the excise tax department in particular, in its decision to lower excise tax rates for vehicles using alternative fuels.

Apart from the obvious that pickups are enjoying brisk sales at the expense of their passengercar counterparts, the latter has joined the diesel bandwagon with premium powerhouses like DaimlerChrysler and Volvo introducing new models of oilburners while Citroen and Ford confirmed their interest in E20capable vehicles in lieu of the current E10 models.

Rising oil prices are likely to make some wouldbe car purchasers think twice.

Carmakers are still waiting for the government to come clear with more definite policies and regulations in order to develop a proper infrastructure.

Although the government announced on June 1 this year that the fuelsubsidy programme would be scrapped in 10 months, its reluctance to let go of the low price was clear. Actual pump prices will remain unchanged for a while after cabinet ministers agreed to temporarily reduce excise taxes during the transition period.

On the other end of the spectrum is a possible scenario where the government will be forced to stop all forms of subsidy for the diesel price which will see the price per litre soar to as much as 23 baht or more depending on world crude prices.

Such a scenario will cause a drastic sales drop in every major segment contrary to what automotive powerhouses anticipate in terms of positive market gains when compared to the previous year. However, this should occur once diesel subsidies stop.

The overall picture for the Thai car market still has the same players dominating, with Toyota and Isuzu claiming a combined 65% of the total vehicle market as the first half comes to a close.

Dominating onetonne pickup truck sales are Isuzu and Toyota, with more than 72% of the pickup market and the rest divided among Mitsubishi, Nissan, Chevrolet, Ford and Mazda. Total demand (JanuaryMay 2005) was 174,303 units.

Sales of passenger cars, which are fast becoming a proponent of dieselpowered engines, are dominated by Toyota, which took more than 51% of the segment, followed by Honda at 25.9%. Total demand (JanuaryMay) was 74,268 units.

As for the total market, the 282,476 units sold in the first five months of 2005 represent a positive indicator that the industry's forecast of 680,000690,000 units will be met unless soaring oil prices further dents consumers' purchasing power.

In summary, the desire of car manufacturers to sell will overcome obstacles like high crude oil prices in the short term in exchange for positive gains in volume sales. This could be achieved with alternative fuelcapable vehicles and a less stringent vehicle tax structure for "green cars".

A possible solution for the Thai vehicle market is to beef up its supporting industries and vehicle export sector in addition to building an infrastructure for alternative fuels and a "secondpillar" industry to back up the onetonne pickup segment.