Solid Growth, Some Challenges Seen for ASEAN

BANGKOK – Continued expansion is in the cards for the automotive markets of Southeast Asia, but potential hurdles remain, notably a lack of technological capability and capacity, analysts here say.

Speaking at the Thailand Auto Parts & Accessories (TAPA) exhibition, the biennial automotive components trade show, Hagime Yamamoto, director-automotive research, IHS Automotive Thailand, forecasts “robust growth for the new (Asian) triad: India, China and ASEAN (the Association of Southeast Asian Nations).”

Southeast Asia sales will climb 6.1% this year, Yamamoto says, outpacing the 4.1% expansion rate for the world overall but falling short of China’s 8.8% gain.

Developing markets will continue to grow over the next few years at a 6.7% compound annual rate, easily surpassing the 2.5% gain for developing markets, he says. By 2017, Yamamoto predicts emerging markets will account for 59% of global vehicle sales, up seven points from 2010.

By then, ASEAN car sales will reach 4.29 million units, an increase of 2 million from 2011 levels, he says.

Output in Thailand should hit 2 million vehicles this year, the IHS analyst says, but its reign as the top producer in the ASEAN region will not last.

“Thailand will be No.1 this year, but in the coming years, Indonesia will take over,” he says, though Thailand still is expected to rise to ninth spot among the world’s automotive producers.

By 2017, total ASEAN production should hit 5.1 million cars, Yamamoto predicts.

Driving growth in Thailand is the wave of eco-cars from Japanese auto makers, which in some cases are shipping vehicles back to Japan, says Hiroyuki Kondo, vice president-Bangkok for the Japan External Trade Organization (JETRO).

While last year’s flooding here saw 2011 production end down 11.4%, the situation has been reversed during first-quarter 2012, he points out, with March a record month, up 11%.

The advent of a new breed of global entry-level models will be ASEAN’s internal growth driver over the next half-decade. The $7,000-$10,000 cars, specific to emerging markets, are suited for the lower half of the new middle classes. The higher-equipped eco-cars, built on global platforms and focused on fuel-efficiency and safety, will drive demand from upper-middle-class buyers.

“The new middle class coming from the emerging markets will buy the new global cars,” Yamamoto predicts. That rush of product includes the Nissan March, Mitsubishi Mirage, Honda Brio and Suzuki’s Swift.

Kondo also points to increasing research and development activities in Thailand from Japanese auto makers. Local operations in the country date back two decades, with Isuzu inaugurating a technical center in 1991, followed by Honda (1997), Toyota (2003), and Nissan and Denso in 2008.

Still, the JETRO official believes Thailand’s infrastructure isn’t coming up to speed at sufficient pace, and that may threaten the country’s ability to reach targeted production of 2.5 million vehicles annually.

Thai parts makers remain limited in their ability to develop components, he says. They are forced to rely on data and drawings supplied from parent operations and lack the capability to evaluate in-process product defects and resolve post-production issues.

The Japanese OEMs are working hard at skills training and supplier certification, Kondo says.

Yamamoto sees the Indonesian market reaching 1 million sales by 2014, up from an estimated 840,000 in 2012, with annual growth at 8.3% until 2017, the highest within ASEAN.

“We see strong growth for Indonesia,” he says, “(but) we have reservations.”

Uncertainties include increases in fuel prices, which were expected to take effect in April but have been delayed. Coupled to that are new regulations governing down payments on new-vehicle purchases, which is affecting consumer purchasing sentiment but will limit demand only “short-term, not long-term.”

Indonesia sales will rise to 950,000 vehicles next year and break the 1 million-unit mark in 2014, Yamamoto says. By 2017, volume should reach 1,280,000. Production in the country should grow 10.8% annually through 2017, he predicts.

Malaysia, on the other hand, has been stagnant as a result of strict lending regulations, cutting new-car credit availability nearly in half, the IHS analyst notes. Auto makers must be “more proactive in finding partners so they can survive when the market opens up (with the arrival of the single ASEAN Economic Zone in 2015),” he says.

Yamamoto doesn’t foresee ASEAN’s bit players making any short-term progress. The Philippines, he notes, has been stuck in neutral for 10 years. “There will be positive growth, but not as strong as other (ASEAN) countries.”

Vietnam “hasn’t grown much due to government regulations and new taxes... affecting market sentiment,” he says. The market is down 30% this year, Yamamoto notes, and that is unlikely to change. “Don't expect growth, expect minuses.”