By KATHY CHU And
NOPPARAT CHAICHALEARMMONGKOL
Source: The Wall Street Journal
March 24, 2015
Falling car sales and political uncertainty in Thailand are raising concerns that Southeast Asia’s leading car-manufacturing nation could lose out to competitors in the region, especially Indonesia.
The Thai government on Tuesday reported a nearly 11% year-to-year drop in domestic car sales for February, marking the 21st consecutive month of decline. The weak numbers come as auto makers roll out a bevy of promotions at this week’s Bangkok auto show, traditionally one of the industry’s busiest sales periods.
Robust domestic demand would be important to Thailand maintaining its crown as the largest auto producer in Southeast Asia, and reaching its goal of producing 3 million cars a year by 2017. Last year, Thailand produced 1.92 million autos, including light, medium and heavy commercial vehicles, according to data firm LMC Automotive.
“If demand doesn’t turn around in the next couple of months, it’s going to be very bad,” said Chukiat Wongtaveerat, an analyst with Ipsos Business Consulting, which lowered its full-year auto sales target on Tuesday. “There’s a lot of uncertainty in Thailand.”
Mr. Chukiat said, however, that rising exports from Thailand could help prop up the country’s car industry even if domestic demand doesn’t recover quickly. Thailand’s auto shipments abroad in February rose more than 11% due to a pickup in the Australian market and European growth in the so-called eco-car segment, according to the Federation of Thai Industries’ Automotive Industry Club.
Thailand’s eco-car program reflects a government initiative for production of lower-emissions vehicles. It is seen as a cornerstone of the country’s efforts to build its auto industry and drive car exports.
Thailand is Southeast Asia’s largest auto manufacturer and has long been attractive for car producers because of a supply chain built over more than 50 years. But lingering political uncertainty in the country, along with steep household debt, which central bank data show stood at 84.7% of gross domestic product at the end of the third quarter of 2014, have weighed on the nation’s auto industry.
Thailand’s army seized control of the country in a coup in May 2014, promising an eventual return to democratic rule. The resulting political uncertainty has weighed on consumer demand.
The danger is that as Thailand’s car industry struggles, auto makers will look elsewhere. “The heightened political uncertainty has dented the confidence of auto makers in making major new investments in expanding Thai production,” said Rajiv Biswas, Asia-Pacific chief economist for IHS Global Insight.
Indonesia, in particular, is becoming more competitive for car manufacturing because of the depreciation in the rupiah since 2012, low wages and rising car demand from the country’s middle class, Mr. Biswas said.
Mitsubishi Motors Corp.’s chief executive, Osamu Masuko, said in an interview with The Wall Street Journal last week that the Japanese auto maker is expanding in Indonesia and the Philippines instead of Thailand.
“For Thailand, I think we should operate within the scale that we currently have now,” said Mr. Masuko, noting that Mitsubishi has an annual production capacity of around 500,000 vehicles in Thailand.
Nissan Motor Co., meanwhile, has been expanding in Indonesia for the past few years because of a shortage of production capacity in Thailand, according to Prapat Choeychom, a senior vice president for Nissan Motor Thailand.
Mr. Prapat says “it’s too early to rule (out) that the recent fall means the market is in a bad shape,” but consumers may just be holding out for attractive promotions from auto makers before buying.
The Thai market weakness is adding to uncertainty over the eco-car program. The initiative’s second phase, launched in 2013, attracted 10 car makers, who must commit to manufacturing some of the cars’ key components in Thailand. Companies have until 2019 to begin production, but analysts believe that some manufacturers won’t be able to follow through, given weak demand in Thailand.
Mr. Masuko said that for Mitsubishi, now isn't the time to begin production under the second phase of the eco-car program because of stagnant consumer demand.
In recent years, Mitsubishi has said it has been focusing on building bigger, more profitable vehicles such as pickup trucks and sport-utility vehicles instead of the smaller vehicles the program covers.
Meanwhile, a Honda Motor Thailand spokeswoman said the company is still considering whether to produce cars under the program given “the circumstances of the market in the future and highly competitive situation in the small-sized car segment.”
General Motors Co. has said it would no longer participate in the eco-car program, part of a sweeping restructuring of its operations in Thailand as it focuses on producing trucks and sport-utility vehicles.
—Yoko Kubota contributed to this article.
