Thailand Car Market Splutters Are Bad News For India

After a couple of years of political turmoil as Red battles Yellow for control of the streets of Bangkok and the hearts and minds of the population, coupled with the recent coup d’etat, it is feared that the Detroit of the East, Bangkok, will take another hit.

Recent figures show that the auto sector production has shrunk by more than 25% in April and sales by more than 33% against the same period last year. Ipsos Consulting Group has lowered its estimate for Thailand’s car production by 16% and now believes that the country will only manufacture 2.1 million cars for the year; up to 45,000 jobs will be lost as a result.

‘It seems clear that the industry is going to have to continue to manage costs very carefully to cope with the downturn,’ said Colin Kinghorn, head of Southeast Asia for Ipsos. ‘Much will depend on how quickly confidence returns to the Thai market following the (declaration) of the recent coup.’

Marc Speigel, who is the vice-chair of the Joint Foreign Chambers of Commerce in Thailand, a collection of 29 chambers of commerce with 8500 members, believes that the coup could ‘set the country back ten’ if it takes years to hold a general election and delay the country’s integration with the rest of the Southeast Asian economic community.

‘You have all these companies waiting to invest, and the longer this goes on, the higher the probability they’re going to pull that investment,’ he said.

All the doom and gloom doesn’t seem to be heard in Wolfsburg, the home of Volkswagen, who are currently Europe’s largest car manufacturer and in the process of completing their application to set up a car plant in the Kingdom in a bid to narrow the gap with their regional competitor, Toyota.

VW is reported to be looking to avail itself of generous tax exemptions offered by the Thai government, which allows tax exemptions for automakers investing at least ฿6.5 billion (US$200 million) in local manufacturing.

VW currently trails far behind its rivals in the region. Regional champion, Toyota, led the Thai market last year with a 30% market share of the 725,135 vehicles sold, according to data from industry researcher, LMC Automotive. Put together with the other Japanese automakers, our friends from the Land of the Rising Sun accounted for 88% of the market in 2013, again according to LMC. VW is pushing into the region as part of a broader plan to nab the top spot in global sales from Toyota by 2018.

‘VW has always been one of the manufacturers trying to position itself globally,’ Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler, said by phone. ‘Current sales volumes in Southeast Asia are much smaller than in China or the US, but it’s one of the regions where Japanese carmakers are significantly ahead of VW, so there’s room for growth.’

All of this is bad news for India which was long a hub for car exports to developing markets. Spare capacity and newer factories in Thailand are making more than a few manufacturers consider moving to the Kingdom. Ford is to move production of the Fiesta to the Kingdom and Suzuki is planning to do the same for its recently launched Celerio.

Mayuree Chaiyuthanaporn, senior analyst of IHS Automotive Asean, which tracks the Thai automotive market, said, ‘Manufacturers are looking at Thai plants mainly because of India production constraint coupled with the better quality production in Thailand.’ Reportedly, the Ford EcoSport produced in Thailand provides better noise, vibration and harshness (NVH) levels. Meanwhile, export orders are likely to utilise Thailand's capacity to its maximum.

It’s not all bad news for India, though, as exports from India have gained momentum with the Ford Figo and have today reached new heights with Ford EcoSport being exported to mature markets like Europe, with the Society of Indian Automobile Manufacturers reporting an increase in exports of 6.09% for passenger vehicles.

image: plugincars.com