Toyota Thailand Prepares to Deal With Market Slowdown

BANGKOK – Following a record-breaking 2012 for Thailand’s automotive industry, which saw sales surge 80% to 1.43 million units, all eyes now are on 2013, and particularly on this growth’s sustainability.

Last year’s total included a large number of cars purchased under a generous government-incentive program.

Toyota Thailand President Kyoichi Tanada predicts that while the market will not match last year’s record sales, it won't retreat much and should be able to consolidate its gains. "The total domestic market (in 2013) is projected at more that 1.2 million units, or around a 10% decrease," he says.

Tanada sees cars absorbing a bigger slowdown than commercial vehicles, owing to the expiration of the government program offering rebates to first-time buyers. Car sales are estimated at 542,300 units, down 19.4%, with commercial-vehicles totaling 707,700, a 7.2% drop.

Of that CV total, 567,100 units will be from the market-leading 1-ton-pickup segment, marking a 4.3% slowdown. SUV sales should approach 70,000.

Tanada believes Toyota will outperform the market this year and push its share back up to its usual 40% range. He predicts 500,000 vehicle sales, down 3.1%, with 200,000 car deliveries, units, an 11% decline but still well ahead of the overall market.

The executive attributes this to a backlog of orders from the first-time-buyer scheme that will take until June to clear, as well as demand for the forthcoming refreshed Vios and interest in Toyota’s long-awaited eco-car, the new Yaris, which comes to market later this year.

The new Vios, which gets a significant styling upgrade, started pre-production in December and type approval has been granted. While plans for a formal launch have not been specified, some models already have been delivered to specific customers, says Wichien Emprasertsuk, Toyota Thailand executive vice president-marketing.

Clearing the backlog of 20,000 to 30,000 orders for the current-generation Vios from the first-time-buyer program will affect the new model’s introduction, as deliveries are not expected to be completed until about June, Emprasertsuk says.

Tanada sees Toyota's CV sales slightly ahead of the market in 2013, rising 3% to 300,000 units, with pickups driving that performance, up 7.1% to 250,000.

Toyota is running its Thai plants at full capacity and production will be boosted by the return of the TAW plant this month. The auto maker will see a further significant hike when the new Gateway 2 factory, with an eventual projected annual capacity of 300,000 units, comes onstream in the third quarter.

First out of the Gateway 2 plant will be the last of the Thai eco-cars, but Toyota isn’t providing any numbers yet. “We still don’t have a clear balance (regarding) movement between eco-car, domestic cars and exports,” Emprasertsuk says.

Keeping up with the spike in domestic demand has curtailed Toyota's aim to grow Thailand as an export hub, and this year will see little change. "For export, we target (completely built-up vehicles) at around 412,000 units," Tanada says. That exceeds the 2012 total by just 6,000.

Revenue from parts exports is estimated at TB238 billion ($7.97 billion), roughly in line with last year.

Toyota Thailand wants to grow its exports within the Association of Southeast Asian Nations region and currently ships vehicles to all member nations except Laos and Cambodia. This year, there will be further emphasis on Indonesia, with a slew of products including the Vios, Altis, Camry and Hilux pickup already coming as CBU units from Thailand.

Tanada would like to increase Toyota exports to Indonesia, but admits this will happen only after the auto maker meets domestic demand. “Exports to Indonesia exceed imports coming the other way” into Thailand, he says.

Tanada insists there are “increasing opportunities” for Toyota Thailand to export across Asia. But Toyota Thailand Vice Chairman Ninnart Chaithirapinyo sees two risk factors this year: “The exchange rate of the baht is appreciating due to (capital) inflows,” and the unsettled “global economy, especially Europe.”

For the first, Chaithirapinyo says, “Toyota has to remain competitive to cope with the baht appreciation.” He concedes the second situation is out of the auto maker’s control.

Toyota Thailand is focusing on improving efficiency to absorb the impact of the baht appreciation. Tanada points to "reducing the takt time from 1 minute to 55 seconds" as an example.

With the country’s daily minimum wage recently raised to TB300 ($10.03), Chaithirapinyo reiterates, the auto maker must upgrade efficiency further and believes it is well-positioned to do so. At the same time, “certain suppliers have to improve operational efficiency.”

Chaithirapinyo points to Japan for answers, noting auto makers there responded to a wage hike by increasing automation. “Hopefully Thailand (also) will be able to improve its competitiveness and efficiency to cope with the wage rise.”

Another challenge facing Toyota and other Thai auto makers is the government’s plan to levy a vehicle excise tax based on emissions rather than engine size beginning Jan. 1, 2016.

“In principle, Toyota agrees with the announcement,” Emprasertsuk says. However, the auto maker believes the adjustment period of less than three years is too short and would like to see it extended to five years, as the lifecycle of new-car purchases is four years.

Bringing TAW back onstream to produce the HiAce Commuter High Roof, the first time this minivan has been assembled in Thailand, is significant even though full-capacity volume of 18,000 units, set to be reached by midyear when the plant goes to two shifts, is lower due to the plant's constrictions.

Toyota is aware that its CV capacity is below requirements here, and it needs to address its whole commercial portfolio availability, particularly in terms of CBU exports. “We don’t have the opportunity to export vans,” Tanada admits.

With capacity being squeezed and the new Gateway 2 plant expected to raise output to 300,000 units from an initial 220,000, Toyota is eyeing new investments in 2014, although Tanada says only, “After this year, we will expand our factories.”

Gateway 2 will be the second new factory Toyota opens in ASEAN this year, with a new plant set to come on line in Indonesia.