Asia's Car Trouble
The perfect market. That's how the world's carmakers viewed Asia until just a few months ago. Rising incomes, hundreds of millions of potential buyers--the ingredients seemed in place for the biggest car-buying binge in automotive history. The Japanese, Europeans, Americans, and Koreans all rushed to get in on the bonanza before it was too late.
Now, the boom has turned into a bust because of a currency crisis that has devastated many local economies and prompted scared consumers throughout the region to shun big-ticket items like cars. In Japan, dealers are desperate for customers, while the Chinese are selling their most popular car, the locally made Volkswagen Santana, for 25% less than two years ago. Sales are evaporating in Thailand, Malaysia, and Indonesia.
Giants like Toyota Motor Corp. and Ford Motor are grimly enduring the recession, while the national car companies of Indonesia and Malaysia face their roughest road test yet.
It's time to rethink strategies. In crisis, of course, there is opportunity. And in this crisis, the biggest opportunity seems to lie in the area of partnerships. Both Ford and General Motors Corp. want to attain a 10% share of Asia's market in the next decade or so. Local production is a must, so why not pick up someone else's capacity cheap, especially in hard-hit Korea? Thus Ford is talking to Samsung and Kia, while GM is dancing with Daewoo Motor, just six years after a bitter corporate divorce. Says Alan Perriton, president of GM Korea: "Trying to go it alone just doesn't make sense."
The Europeans want to change their tactics, too. Their luxury carmakers are seeing sales plummet in the region. Used Mercedes, Volvos, and BMWs regularly wind up on the auction block in Bangkok, depressing the market even further. BMW's sales may fall by as much as 75% in Indonesia and Thailand. So European makers are trying to gain more control over the marketing of their cars by buying into local importers.
Meanwhile, the Japanese are considering their next move. They have spent billions creating an Asian auto industry from scratch. Nine out of 10 cars and pickup trucks in the region are either made in Japan or in Japanese plants in Thailand or elsewhere. And Japan's carmakers want to keep it that way. "We are not going to flee," says Honda Motor President Nobuhiko Kawamoto.
Flush with windfall profits from the weak yen, Toyota and Honda can afford to wait for the region to recover. As they do, Japan's carmakers are flying hundreds of Thai workers back to Japan for additional technical training and extending support to local suppliers to revamp their operations for export. Even before Ford and GM get rolling in Thailand, "the Japanese are digging in even deeper," says Michael Dunne, president of Automotive Resources Asia.
Yet the Japanese also have problems. They want to source all their parts locally: That way, a Thai plant won't have to spend huge amounts of depreciated baht to buy parts from Japan. Far better to buy locally and earn hard-currency profits in Japan, the U.S., or Europe. It's a good idea, but it needs work. Japan's carmakers in Thailand get only 70% of their parts locally, and their locations in Indonesia and the Philippines have much lower local content and so practically no cost advantage. Turning these Asian plants into supercheap exporters will not be easy.
The cost of staying in Asia's auto markets will keep climbing as sales contract further, particularly in Southeast Asia. Analysts hope for a rebound by 2000 or so. They had better be right. All these cars are creating a world-class glut that could take years to work off. That gives carmakers a choice: stay in the race, or end up as roadkill.
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