The Car Market Gets Back on the Road
When Honda Motor Co. (HMC ) launched its CRV sport-utility vehicle in Southeast Asia in late 1996, the carmaker had reason to expect strong sales. The CRV featured the all-wheel drive popular on the rough roads of poor nations such as Indonesia, while its carlike ride appealed to drivers in better-paved Thailand. Before the CRV got any traction, though, the 1997 currency crisis blew the tires off Southeast Asian car sales.
Now, Honda is gearing up again with a new CRV launched this spring--and it's selling at twice the pace of last year's model, helping to spur interest in Honda's entire lineup. "Demand [in Southeast Asia] has just about recovered to levels before the crisis," says Honda President Hiroyuki Yoshino.
Honda isn't alone in its renewed optimism. After a long dry spell, cars, trucks, and SUVs are selling in Southeast Asia. Robust demand for exports and cheaper credit at home have helped put the region back on its feet. That in turn is fueling purchases of new cars to replace the aging, pre-crisis fleet. At the nadir in 1998, car sales in the region's top four markets plunged to fewer than half a million vehicles. But this year, demand is expected to rise 7.5%, to 1.15 million, the highest level since the peak of 1.4 million in 1996.
The budding recovery is likely to benefit Japanese carmakers the most. That's because they have dominated Southeast Asia for the past 30 years with vehicles designed for local tastes and highways. An off-road vehicle from Toyota Motor Corp. (TM ) sold some 100,000 units last year under the name Kijang in Indonesia, Tamaraw in the Philippines, and Unser in Malaysia. Toyota's HiLux pickup truck vies for sales with Isuzu Motors Ltd.'s Spacecab. And Honda's City and Accord split the sedan market with Toyota's Corolla and Camry. Only in Malaysia, where state-owned carmakers Proton and Perdua hide behind import barriers, do the Japanese come in a distant second.
Granted, demand in the region stands at just a fraction of the 19.7 million vehicles sold annually in North America. Profit margins are lower in Asia, too, since few luxury vehicles are sold. And while car ownership is becoming more common in the more developed countries of Southeast Asia, Honda says scooters and motorcycles still outsell cars 3 to 1 in Thailand. Even at current growth rates, car sales won't match peak pre-crisis levels before 2006.
Still, Southeast Asia offers a glimmer of light in an otherwise dismal market. Japan's auto makers face stagnant sales at home and growing losses in Europe. Sales in North America remain strong, but concerns about the economy make for an uncertain outlook. Falling trade barriers make Southeast Asia more attractive, too. Next year, Indonesia, the Philippines, and Thailand will drop tariffs on auto imports to 0% to 5%, from as much as 20% today. As a result, carmakers can better streamline operations. Toyota last year began exporting Corollas made at its Thailand plant to the rest of Southeast Asia. This year, Honda plans to export Stream minivans to Thailand from a plant in Indonesia. Compared with the U.S., "Southeast Asia has more potential," says Masaki Nakatsugawa, executive vice-president of Toyota Motor Thailand.
That has Japan's carmakers scrambling to lock in their advantages. Honda crammed a third row of seats into its new CRV to appeal to a local predilection for piling in extra passengers. Toyota plans a new seven-seat minivan for Thailand, code-named 760N, and is setting up full-fledged finance subsidiaries in Thailand, Malaysia, and the Philippines. Japanese auto makers "will guard their position jealously," says Chris Richter, an analyst at HSBC Securities Inc. in Tokyo. If the Japanese succeed, it will probably be at the expense of the Americans. Ford (F ), GM (GM ), and DaimlerChrysler (DCX )--along with their Japanese affiliates--control some 32% of the region's market. Toyota alone has almost as much share as all the Americans combined.
Even in protected Malaysia, the Japanese are starting to make inroads, thanks to hot models and spot-on marketing. Alvin Lee, manager of a Honda branch in Penang, Malaysia, has sold nearly 40 CRVs since April and has orders for 60 more. "There's still a three- to four-month waiting list," he says. Buyers throughout the region face similar delays. Those extra seats, it seems, are worth the wait.
By Chester Dawson in Tokyo and Frederik Balfour in Hong Kong