Thailand Coup damaged Thailand's auto ambitions

If you have been following the Thai automotive scene over the last decade or so you will be aware of the rapid growth of the industry. Aspirations to become the "Detroit of Asia" is the obsessive driving force behind the Thai auto industry, and the term has been flashed around so regularly by policy makers and the media in Thailand that I'm starting to ignore it completely.

The auto manufacturing industry is very important to Thailand, and the goal is to become one of the top-10 auto manufacturers in the world by 2010. But is this possible for a nation that only seems to know how to make pickup trucks?

Diversification needed

One of the ways that Thailand has become successful in the industry has been by providing incentives and applying pressure on manufacturers to set up manufacturing plants here. By charging very high excise rates for imported cars, the government has created a climate in which only locally produced cars are competitively priced.

Pickup trucks are the biggest seller in Thailand, and also represent the biggest volume of exports, with Thailand being the second largest market in the world after the US. The reason for the popularity of the truck in Thailand can be attributed to the fact that they are very useful and practical in Thailand, but as much as anything it is simply that they are so cheap here when compared to other vehicles.

A decision was made that the truck was the way to go in Thailand and vehicle registration tax rates were set accordingly. Pickup trucks enjoy a 3% rate, where the average passenger car commands 30% tax. The result is that the pickup is a lot of metal and moving parts for the money, and even those who have no practical reason for owning a vehicle so large find it too compelling an option to turn down.

But focusing so much on one area of the market is not going to allow Thailand to achieve its goal of becoming the Detroit of Asia.

Thailand needs to move into other areas of the market, and create similarly suitable conditions to attract investment, and stimulate growth.

Eco Cars

Thailand is attempting to do just that in the area of small, economical cars. The EcoCar project has been an off-again, on-again sort of affair, but it seems that the kinks in the formula have been ironed out and a solid plan has been reached.

The idea is to provide BoI incentives, including tax breaks for investment, in order to attract new production facilities for small cars in Thailand. A list requirements have been produced which will be used to determine which cars will qualify for the "Eco Car" status. Safety, emissions and fuel consumption figures are the three basic criteria that a car must meet.

This plan received a lukewarm reception within the Thai auto industry, but when the idea was taken to Japan and pitched directly to the top Japanese manufactures, and according to reports that direct approach had some positive results.

Problems

For the EcoCar to be a hit, there is a need for local interest in the project. Although this is currently seen as perhaps the biggest barrier isn't it possible that this can easily be overcome by offering sufficiently low tax on small EcoCars to allow them to be priced very competitively. At the right price, anything will sell.

The big problem for the EcoCar is not lack of interest, but political uncertainty.

Since the Coup the Thai auto industry has been on a downward trend. Sales in October were down 10.5% on the previous year, November were likewise down over 9% on 2005 figures, and while Toyota - the self-appointed industry watchdog - still believe that 700,000 vehicles will be sold this year, that would appear optimistic at this point.

Although to the observer within Thailand the political atmosphere seems very stable, those considering further investment in Thailand are likely to take a wait-and-see stance. The weakness of the US currency also makes Thailand less attractive to potential exporters.

The Future?

Regardless of how the situation may appear on the ground in Thailand, foreign investors are likely to play the waiting game, at least until after fresh elections.

This piece from the Japan Times sums up the stance of the Japanese auto industry:

JAPAN MAKERS PLAY WAIT AND SEE

Japanese manufacturers have adopted a wait-and-see attitude, worried about where Thailand may be headed. In September, a bloodless coup brought down the government of Prime Minister Thaksin Shinawatra, who is accused of corruption and abuse of power.

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