Thailand Seeks to Amp Up Auto-Parts Industry

BANGKOK, THAILAND –This country wants to amp up its auto-parts manufacturing sector.

Thailand is No.14 in the world for auto production. The parts industry is growing alongside its bigger brother, but some people are looking for a growth spurt.

“Both industries are expanding, although we are not at a point of making every auto part in Thailand,” says Preecha Leelawilailak, vice president of the Thai Auto-Parts Manufacturers Assn.

The Thai government is trying to get closer to that point by offering generous incentives to certain parts makers. Those include high-technology producers of antilock-brake systems; electric-vehicle batteries; automatic and continuously variable transmissions and electronic fuel and stability-control systems.

The government offers provisional incentives to some vehicle-related industries, spurring them to locate in specific economic-improvement zones in less-developed areas of the country. But makers of high-technology auto parts can locate anywhere and still receive maximum incentives and tax breaks.  

“There are opportunities for companies that make components that are needed in Thailand,” says Vasana Mututanont, deputy secretary general of the national government’s Board of Investment.

Thailand has 386 Tier-1 and 1,100 Tier-2 and -3 auto suppliers. Many others produce parts for motorcycles, a common mode of transportation here especially in urban areas.

In addition to serving the domestic market, Thailand companies exported $9.7 billion in auto parts last year, mostly to other Asia/Pacific countries, Japan in particular.

Some Thailand aftermarket firms envision the U.S. as a potential land of opportunity. But they are finding those dreams hard to realize, says Poramegr Leegomonchai of the Thai auto-parts association.

“A lot of our aftermarket members want to enter the U.S., but they haven’t had much success,” he says. “They used to study how to get into the U.S. market, but it is very difficult for a small to medium enterprise to do that. Maybe they’ll eventually find success on the U.S. West Coast, but probably not on the East Coast.”

However, a major domestic supplier, the Thai Summit Group, has an operation in the Midwest. It is the Ogihara stamping plant in Howell, MI, about 40 miles (64 km) west of Detroit. Ogihara customers include Ford and Chrysler.

“I’m preparing myself for Michigan weather,” says Oran Pisitsawat, a Summit management trainee who will relocate to that facility. 

Thai-owed Summit employs 25,207 people and had 2011 sales of 60 billion baht ($1.9 billion). One of its plants, TS Auto Parts, located in Samut Prakarn, south of Bangkok, makes a range of parts, such as instrument-panel consoles, bumpers, chassis components and roof racks.

Customers include Toyota, Honda, Nissan, General Motors, Ford and Mercedes-Benz.

“We have the capacity to produce 600,000 chassis units a year,” says Chatkaew Hart-Rawung, the factory’s manufacturing director. “We are the largest chassis maker in Thailand.”

The assembly lines use highly automated equipment and robotic technology, he notes, adding that the robots offset labor costs.

Summit factory workers earn 300 baht ($9.50) a day base pay. That’s modest by some global comparisons. In the U.S., entry-level auto workers earn about $14 an hour. That represents the low end of a 2-tier pay scale agreed to by U.S. auto makers and the United Auto Workers union in 2007 to reduce manufacturing costs.

Some analysts say the lower rate is not enough to attract young workers to U.S. auto plants. Thailand has had similar personnel issues, accentuated by a low unemployment rate of about 0.7% compared with about 8% in the U.S.

Turnover has been high in some Thail plants, but that seems to be abating.         

“We are getting a more stable workforce,” says Michael Diamente, giving a tour of a plant he oversees as managing director of supplier Dana Spicer Thailand. “At first, some people didn’t want to work at a factory. But we have a low turnover, which is unusual for Thailand.”

The Dana Spicer factory in Rayong employs 324 people, and primarily makes axles and driveshafts in an industrial park in Rayong. Ford and Nissan are its biggest customers. Sales were 9.4 billion baht ($300 million) in 2011, an off-year because of major flooding that hurt the Thailand auto industry.

The flood damage shows the fragile interdependency of the automotive supply chain. Although Tier 1 supplier Dana Spicer was not directly affected by the natural disaster, several Tier 2 and 3 suppliers were. Consequently, Dana Spicer had to cut production because it couldn’t get the subparts needed to make its automotive components.

“Nobody other than the people who live here could believe a flood could last for months,” says Diamente, who was born in Italy, raised in Indiana and has resided in Thailand for nearly nine years.

He takes pride in running a lean-inventory operation. “I keep a day’s worth of inventory,” he says. “That is all between me and the customers. We ship eight times a day.”

Worker safety is one of his main concerns, as it is at many industrial facilities in Thailand. “We emphasize safety and hold daily meetings on it,” he says. “Our goal is for everyone to leave here at the end of a shift in the same condition they arrived.”

Dana Spicer Thailand is a cornerstone of the supplier’s Asia/Pacific operations. “When we started here in 1992, you could see the growth in the auto market,” Diamente says.

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