Headwinds expected for auto industry

Headwinds expected for auto industry

While the domestic engine is purring, external factors may throw up roadblocks for carmakers

The FTI predicts car production in 2018 to increase by 1% to 1.97 million units. (Photo by Pattanapong Hirunard)
The FTI predicts car production in 2018 to increase by 1% to 1.97 million units. (Photo by Pattanapong Hirunard)

Thailand's automotive industry is forecast to face myriad negative external factors, though the domestic market is expected to gain momentum in line with the country's GDP.

The Federation of Thai Industries (FTI) predicts overall car production in 2018 to increase by 1% to 1.97 million units. It forecasts Thailand's car exports to remain stable at 1.1 million units. Domestic car sales are projected to rise by 2% to 870,000 units.

Surapong Paisitpatanapong, a spokesman for the FTI's automotive club, said the group has a conservative outlook for the overall market because of external factors pressuring the country's car output and exports in 2018.

"More than half of output is normally churned out for export, so the global economy, non-tariff barriers and instability are major external risks that local carmakers cannot control," he said, citing the World Bank's 2018 global economic outlook.

Mr Surapong said shipments to the Middle East, which used to be a key destination, have shrunk significantly since early 2016.

This region used to represent 25-27% of overall Thai car exports, before plunging to 14% at the end of 2016.

Now that percentage has declined further to 9-10% of total Thai car exports, according to the FTI's monthly report.

Mr Surapong said major factors that could hurt Thai car exports are war, political tensions and volatile oil prices.

He said the export contraction in the Middle East has hit car output in Thailand, especially pickup production, which is the core product sold to the region.

Toyota and Isuzu, which form the crux of the global pickup production hub in Thailand, are bearing the brunt of this reality.

Rising production capacity and exports have put Thailand in the No.5 slot among pickup producers, after the US, China, Canada and Mexico.

The club hopes to see a slight upturn in 2018 on the expectation that car exports to the Middle East will rebound.

Currently, Oceania is the main destination for Thai car exports, accounting for 31.5%, with Asia coming in second at 26.7%.

Europe (12.3%) and North America (9.4%) are now important continents for Thai-made eco-cars, Mr Surapong said.

"Thailand has been cut off from the European Generalised System of Preferences (GSP) since 2015, but it seems that auto exports remain healthy," he said.

Non-tariff barriers from select countries are expected to pressure export volume from Thailand, as well as overall global trade.

Earlier, the club voiced concerns about shipment to South Africa, which is trying to localise car assembly instead of relying on importation.

Thai car exports to South Africa account for 2.2% of the total, Mr Surapong said.

Vietnam may issue car-inspection barriers at ports. That would weigh on Thai car exports to the country, though Vietnam is due to cut its import duty on Thai-made cars in early 2018.

For the domestic market, Mr Surapong said the club has a positive outlook regarding Thailand's GDP, projected to grow by 3.8-4.0% in 2018, which would help drive the auto market.

The Thai auto market showed a double-digit growth rate since the beginning of 2017. The high-base effect pushed the FTI to forecast a conservative single-digit rise in 2018.

"There are no worrisome factors for the local market in 2018, though the pace of growth may be lower than what we saw in 2017," Mr Surapong said. "Once GDP is driven by massive investment from the public and private sectors, the car market may expand more greatly than we'd expected."

The Automotive Industry Club reported that car production for the first 11 months of 2017 rose by 1.3% to 1.83 million units, increasing for three straight months.

Pickups boasted the largest output volume at 881,921 units, up 4.1%, while 762,046 passenger cars and sport utility vehicles were produced, up 0.9%.

Meanwhile, 158,309 pickup passenger vehicles (PPVs) were made, down 11.6%.

In 2017, exports from January to November fell 5.3%, decreasing to 1.04 million units with shipment value of 553 billion baht, down 5.5%.

Some 546,632 pickup trucks were shipped, up 1.8%. But passenger car shipments dropped by 12.2% to 392,973, while PPV shipments fell to 104,257 units, down 11.2%.

Sales volume from January to November rose by 12.5% to 767,348 units.

Pickup trucks registered the best sales at 322,150 units, up 9.6%, while passenger cars came in second at 304,801 units, up 21.7%.

Meanwhile, sport utility vehicles saw 46,130 units sold, up 7.6%.

Mr Surapong said local sentiment remains rosy after the introduction of new models and with brighter economic growth prospects across numerous sectors.

Private investment and state spending on megaprojects are also encouraging.

Mr Surapong said the club is confident that car production for the whole of 2017 reached 1.95 million units, up 0.3%, due to the decline in the overall export market, which is estimated to have dropped 7.5% to 1.1 million units.

Sales volume is expected to reach 850,000 units, up 10.6%, but it will not offset the contraction in car exports, he said.

"Car exports in 2017 declined for a second consecutive year, while the domestic car market picked up for the first time in five years," Mr Surapong said.

In 2016, Thailand was ranked 12th globally in term of overall vehicle output.

Thailand is the biggest car producer in Southeast Asia, while Indonesia is second, having made 1.18 million cars in 2016.

Thailand used to be in ninth place, when output exceeded 2 million units during 2012-13, propelled by the Yingluck Shinawatra government's first-time car buyer scheme.

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