Make Way for Southeast Asia’s Newest Car Hubs Amid Consumer Boom

Philippines and Vietnam play catch up to larger neighbors
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  • Car makers are ramping up production to steal market share
  • Rising incomes and young workers attract global car giants

Shells of  BMW 's X5 SUVs stacked in a warehouse at the company's assembly plant in Rayong province, Thailand.

Photographer: Brent Lewin/Bloomberg

To get a taste of Southeast Asia's burgeoning 600 million-strong consumer base and what it means for economic growth, take a look at the car industry.

Car makers are racing to steal a bigger slice of the market attracted by rising incomes and young workers looking to buy their first set of wheels.

The Philippines and Vietnam will be the two fastest-growing production hubs from 2017 to 2021, according to BMI Research. Output will surge 300 percent in the Philippines to 359,000 units and almost double in Vietnam to 112,000 units, it forecast in June.

BMI Research

Toyota Motor Corp. and PSA Group are among those swooping in to take advantage of both nations' increasingly richer populations — many of whom are first-time buyers given existing car ownership is low.  They also boast economic growth rates that exceed 6 percent — among the fastest in the world.

"Vehicle production in the Philippines and Vietnam will remain largely geared towards domestic consumption,'' Fabrice Gatwabuyege, a Johannesburg-based automobiles analyst at BMI, said in an email. To boost their competitiveness as a manufacturing destination, governments must strengthen infrastructure, the business environment and automotive policies, he said.

Car Ownership

Only 6 percent of households in the Philippines own a car and 2 percent in Vietnam, according to Pew Research Center using 2014 data. The ratio is 82 percent in Malaysia and 51 percent in Thailand. Car purchases will rise an average 15 percent a year in the Philippines and Vietnam over the next five years, BMI predicts.

Pew Research Center

The Philippines has offered more than $500 million of incentives for manufacturers who commit to produce at least 200,000 units of a model over six years, and Mitsubishi Motors Corp. and Toyota have signed up. Mitsubishi, which will open a metal stamping plant in the Philippines in 2018, has forecast a 50 percent increase in its output.

Vehicle sales are rising rapidly as the economy booms. Purchases increased 18 percent from a year earlier in the first five months of the year, after gaining 25 percent in 2016. But there are risks ahead. President Rodrigo Duterte is pushing for a sweeping change to tax laws that includes higher levies on cars.

Meanwhile, French manufacturer PSA, which owns brands such as Citroën and Peugeot, and Hyundai Motor Co. are boosting production in Vietnam with a goal of selling to the region. Chinese billionaire Li Shufu is buying a stake in Malaysia’s unprofitable national carmaker Proton Holdings Bhd.

But all the new investment won't be enough to dethrone Thailand and Indonesia as kings of the automotive industry in Southeast Asia. The two each boast of annual outputs of more than a million units, with manufacturers lured by strong supply and logistics chains and better transport infrastructure.
 

BMI Research

 

— With assistance by Nguyen Dieu Tu Uyen

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