Analyst: ASEAN Common Market to Shake Up Auto Industry

Smaller Japanese auto makers such as Suzuki, Mitsubishi and Isuzu as well as new entrants will gain the most from implementation of the Association of Southeast Asian Nations Economic Community in 2015.

Industry analyst Frost & Sullivan says the presence of the single economic community will come at the expense of the big auto makers such as Toyota and Honda, which will see their dominance in the region challenged by smaller players more easily expanding their presence.

“However, big Japanese OEMs are still likely to continue to lead the market,” Dushyant Sinha, principal consultant-Frost & Sullivan Automotive and Transportation Practice Asia Pacific, says in a statement.

ASEAN is made up of Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Burma, Cambodia, Laos and Vietnam with a combined population of about 600 million people.

ASEAN members gradually are lowering their import duties on each other’s products and the tariffs mostly will be abolished by 2015, as the AEC aims to create a competitive economic region with a single market and production base that is fully integrated into the global economy.

A new Frost & Sullivan analysis finds that market realities and existential threat perceptions are the biggest drivers for AEC integration. Given the sheer scope and complexities of various outstanding issues, Dushyant says, there is a strong likelihood some elements of AEC will be put on hold before 2015.

Indonesia, Thailand and Malaysia are the key automotive markets in ASEAN, accounting for 89% of the passenger-vehicle market, but Dushyant says none of those countries ranks above the top 15 global markets.

“The low level of motorization in ASEAN indicates a strong growth potential, while the heavily motorized markets of Western Europe and North America represent a saturated replacement market,” he says.

The BRIC markets led by China and India, and including Russia and Brazil, are ASEAN’s key competitors for investment and market penetration. As an integrated market, ASEAN will be more competitive with the larger BRIC economies.

“Smaller markets, with their individual automotive sectors, will continue to be plagued with issues of productivity and efficiency,” Dushyant says. “Sector integration will lend economies of scale which in turn will help reduce costs and improve competitiveness.”

He says the capital-intensive nature of the automotive sector, coupled with steadily increasing competitive pressures, demands increased technical as well as financial investment for the local industry to remain globally relevant.

An integrated automotive sector will enhance ASEAN’s attractiveness as an investment destination and aid in the survival of local OEMs plagued with limited resources. Dushyant says. Those manufacturers will be challenged to maintain their existing market positions and some degree of consolidation is expected.

However, Dushyant says political factors, accentuated by uneven stages of development among member countries, are key restraints on the implementation of the AEC. He predicts a structural change in the region’s automotive sector will occur when the economic coalition becomes fully active.

“Local players, both OEMs and suppliers, stand to lose the most,” Dushyant says. “Overall, market concentration is set to decrease.”

Suppliers, however, generally are better positioned to adapt to the AEC due to their multiclient share of OE business and opportunities in the aftermarket segment, he says.

Dushyant predicts that under the AEC, Indonesia will further capitalize on its rapid growth as the country becomes more attractive as a regional hub for production and automotive manufacturing jumps. “There will be an increase in competitive activity as Indonesia becomes more attractive in terms of a large market, lower costs and regional access.”

Dushyant says the AEC is not expected to affect Thailand’s vehicle sales and growth is likely to continue at its existing pace. The AEC will enhance local assembly operations considering Thailand’s well-developed vendor network and manufacturing base, he predicts.

Thai vehicle exports will continue to grow both within and outside ASEAN. The country has the region’s most highly developed supplier network and it likely will stay that way under AEC, he says.

“However, AEC seems to be less favorable to the Malaysian automotive sector, as the dominance of national players (Proton and Perodua) will come under pressure and the effects will cascade to the entire value chain,” Dushyant says.