The second phase of the eco-car project must be considered carefully, as it could worsen the struggling automobile industry, says Prime Minister Prayut Chan-o-cha.
He expressed concern on Monday that the second phase of the project might hurt the country's automobile industry, which is still struggling with a severe drop in sales due to effects from the previous government's first-time car buyer scheme.
Thailand is due to start the second phase of its eco-car plan, with production expected to be largely for export since the first phase failed to lift demand at home, where people have limited purchase power following the months-long political unrest at a time when earnings from exports dropped.
"The Industry Ministry should carefully consider whether the scheme will cause any harm to the economy. It's tough to sell cars at home now and even tougher to sell cars abroad, as the global economy remains weak," Gen Prayut said, adding that the ministry should ensure the policy would not create an influx of the new small car.
His warning came after the populist policy to boost domestic car sales failed to benefit the whole country but instead helped to trigger household debt and lead to a glut of small cars in the domestic market.
Prime Minister Prayut Chan-o-cha delivers a speech at the annual meeting of the Federation of Thai Industries yesterday. He called for the second phase of the eco-car project to be considered carefully for fear it could harm the overall automobile industry.
The prime minister called for cooperation between the Industry Ministry and the Board of Investment to continue the plan with extra care to ensure the second phase would not repeat the failure of the first-time car buyer scheme, which created artificial demand that contributed to raising household debt.
"The second phase is unlikely to make any adverse impact on the Thai market, as production will be mostly for export," Industry Minister Chakramon Phasukvanich said in response to the prime minister's concerns.
"But we also expect local demand will rebound, as most people tend to change their cars every five years and this would help to raise domestic demand enough to absorb the increased supply from the second phase.
"He [Gen Prayut] was right about artificial demand caused by the first-time car buyer policy, which hurt the economy. However, we also believe real demand at home will increase anyway in the near future."
But the automobile industry remains pessimistic about the eco-car project, one automobile executive said.
"Although the second phase is aimed at the foreign market, we're not quite sure whether the global economy will bounce back enough to meet rising supply from Thailand. Besides, domestic consumption is unlikely to be strong enough," the source said.
Thailand's automobile industry showed no signs of recovery at the start of this year.
The best production volume is now estimated at 850,000 to 900,000 vehicles this year, down from an earlier projection of more than 1 million.
Household debt is a major factor slowing domestic demand in Thailand.