Exports Rule in Thailand Revival

In early 1997, Thailand's auto industry was poised to take its rightful place as the automotive capital of Southeast Asia. Strong sales caused the world's automakers to start setting up shop in Thailand's Eastern Seaboard Industrial State - proudly marketed as the "Detroit of the East."

But not everything goes as planned. General Motors Corp., for example, broke ground on its plant just weeks before devaluation of the Thai baht sent all of Asia into a lingering financial crisis.

Now, the auto industry is hopeful once again. But unlike the rosy, pre-crash days, automakers now view Thailand not as a booming domestic market, but as an export point.

GM originally planned to produce sedans for the domestic market. Now, after a long delay, the automaker is building Opel Zafira minivans, 90% of which are destined for abroad.

Others are erecting plants with similar export ambitions - made more attractive by the pending ASEAN (Association of Southeast Asian Nations) trade agreement, due to lower inter-regional taxes in the 10-country bloc to 5%.

Volkswagen AG recently opened an assembly plant, BMW AG has broken ground on one, and Fiat SpA is preparing to do the same. Passenger car production began at Auto Alliance Thailand, a joint project between Ford Motor Co. and Mazda Motor Corp. Toyota Motor Corp. and Honda Motor Co. Ltd. both are revving up for small-car production.

Automakers are not ignoring the domestic market, either. Pickups comprise 55% of local sales, due to an unusual tax structure that has them taxed at 3% and cars as high as 48%. Mitsubishi Motors Corp. and Mazda have moved all pickup production to Thailand. Market-leader Isuzu Motors Ltd. and Toyota reportedly plan similar moves. Daimler-Chrysler AG may join in pickup production at an abandoned Mitsubishi plant.

The pickup market is due to expand further through a recent restructuring that significantly lowers taxes on double-cab pickups and pickup/passenger vehicles.

The domestic industry has yet to return to pre-crisis health, but sales - up 43% in the year's first half - reflect a return to stability.

One estimate holds that $2 billion has been invested in the Thai auto industry in the last five years, and more is on the way.

But the investment represents expectations not current market conditions. All 16 plants are operating well below their combined 1.2 million-unit capacity - which means boom times still may be a few years away for the Detroit of the East.