Thailand's Rip-Roaring Auto Market
For years after the Asian financial meltdown, Nissan Motor Co. (NSANY ) put Thailand on the back burner. After all, the country and the rest of Southeast Asia had been severely battered by the crisis, and auto sales in the region were slow to recover. But on Apr. 5, Nissan forked over $190 million to boost its stakes in two local assemblers to 75% from 25%, and installed a senior Japanese exec, Kosaku Hosokawa, to run them. The reason: Southeast Asia is back on the world auto map. "Thailand offers a great opportunity for Nissan," says CEO Carlos Ghosn. "There's potential for growth, and it's an excellent base for us to expand our presence in the region."
Ghosn isn't the only one rediscovering Thailand's potential. After a half-decade pause, a slew of major auto makers are unveiling plans to develop Thailand as their regional production base. Toyota Motor Corp. (TM ) is pouring in $750 million to build a research and development center and increase its capacity to 350,000 cars a year from 260,000. Last fall, Ford Motor Co. (F ) said it would spend $500 million expanding the local factories of Ford and its affiliate, Mazda Motors. Honda Motor (HMC ), Mitsubishi Motors, and General Motors (GM ) are also moving ahead with new investments. "The industry outlook [in Southeast Asia] is very positive," says Michael J. McCarney, president of Ford's Southeast Asian operations in Bangkok.
It's easy to see why the carmakers are optimistic. With plenty of cheap credit available these days, Thailand's auto market grew by more than 30% in 2003, to 533,176 vehicles. This year, it will probably exceed 600,000 -- more than quadruple the level of 1998, at the nadir of the financial crisis. Market leader Toyota Motors Thailand, which sells more than one-third of all autos in the country, saw sales jump 34.2% in the first quarter, thanks to strong demand for its Hilux Tiger pickup and the Altis sedan. Sales at No. 2 Isuzu rose 20.5% in the same period as Thais snapped up its popular small trucks. GM, meanwhile, is banking on the rugged Chevy Colorado pickup it launched in April to help Chevrolet more than triple sales in Thailand, to 20,000.
The picture for Thai exports looks equally impressive. Last year, Thailand shipped nearly 240,000 vehicles, almost five times the number in 1998. Most of the growth has come from Europe, Australia, and the Middle East. But now that Southeast Asia is bouncing back, the region has become a major market in its own right. That rebound is getting a boost from the 2002 reduction of tariffs, to 5%, on autos traded among Thailand, Indonesia, Singapore, and the Philippines. Sales in 2004 are expected to top 1.5 million vehicles, for the first time exceeding the pre-crisis peak in 1996.
Thailand is even becoming a global player. Auto makers love its skilled labor force willing to work for as little as $6 per day and its top-notch network of parts suppliers such as Visteon, Delphi, and Denso. So today, the Ford/Mazda joint venture, AutoAlliance (Thailand), exports Ford Ranger and Mazda Fighter pickup trucks to South Africa and New Zealand. Toyota this year plans to ship abroad as many as 43,000 Soluna Vios sedans, Corolla Artis subcompacts, and Hilux Tiger pickups, up fourfold from 2002. Honda expects to export 42,000 cars -- about a third of its Thai production -- to Australia, India, and even back to Japan.
Even hapless Mitsubishi is doing well in Thailand. Despite the carmaker's woes in the U.S. and at home in Japan, it is Thailand's leading auto exporter. Last year it shipped out 85,000 vehicles, more than two-thirds of its Thai production, most of them to Europe and Australia. Demand is so strong that its assembly plant at the port of Laem Chabang is running beyond capacity. So the group is spending $525 million to boost output to 180,000 from 120,000 by the end of next year and to produce a next-generation pickup. The project is going ahead in spite of worldwide cutbacks just announced by the group. "Plans will definitely continue; we are on target for expansion," says David Howard, chief operating officer at Mitsubishi Motors Thailand.
Oddly, the financial crisis helped Thailand boost its export strength. During the go-go '90s, global auto makers poured billions of dollars into the Thai auto industry, but their dreams had to be put on hold in 1997. Dealerships from Bangkok to Bali and Borneo were shuttered as vehicle sales in Southeast Asia plummeted from 1.46 million in 1996 to 446,450 in 1998. Hyundai pulled out of the region altogether, and tens of thousands of auto workers lost their jobs as the likes of Mazda and Toyota scaled back operations.
The sales plunge forced Thai auto makers to seek alternative markets to help keep the factories running. Until the crisis they had been able to depend on a rapidly growing domestic market for sales, and had little need to look farther afield. So they retooled their sales and marketing arms, and revamped their cars by adding features such as more stringent emissions controls. Their efforts got a huge boost from the devaluation of the Thai baht, which made exports as much as 40% more competitive. "The crisis forced people to learn how to export," says John Thompson, vice-president for sales and marketing at Chevrolet Thailand.
There's one big threat to Thailand's resurgence: China. For now, Thailand has advantages that keep it ahead of its giant rival. First, Chinese auto makers would face duties of up to 300% on exports to Southeast Asia, while Thai-based factories enjoy preferential tariffs of 5% or less. And due to their extensive network of suppliers, Thai auto makers can produce cars more cheaply than China, where many parts must still be imported. GM, for instance, buys 85% of the parts for its Colorado pickup trucks from Thai parts factories, and next year, Toyota will source all the parts for its Hilux Tiger pickup locally. Still, Chinese and international carmakers are gearing up in the mainland, and suppliers are starting to set up shop to serve them. So in just a few years the Chinese will be able to churn out millions of export-quality autos annually, and will be looking to sell them in many of the same markets served today by Thai auto makers. "Thailand has a few years in the sun," says Michael J. Dunne, president of consultancy Automotive Resources Asia Ltd. "But it could get scary in five years." For now, though, the sunshine sure is nice.
By Frederik Balfour, with Brian Bremner, in Bangkok
— With assistance by Brian Bremner