News Room - Business/Economics

Posted on 19 Jan 2010

Opportunities abound for Thai auto industry as CAFTA brings in new era

Thailand's automotive industry is set to be a major beneficiary of the China-Asean Free Trade Area (Cafta), which came into effect on January 1, but it may not yet translate into big gains for consumers.

 

For multinational automotive firms as well as Thai and foreign auto parts and component-makers, golden opportunities lie ahead, given that CAFTA is now the world's largest free-trade area with a combined population of 1.9 billion.

 

China alone has 1.3 billion consumers, while the 10-nation Asean has nearly 600 million people.

 

Thailand will be among the major beneficiaries because its 40-year-old auto industry is the largest in Asean, with a combined capacity to produce more than 1 million vehicles per year.

 

One-tonne pickups and ecologically friendly cars will be the winners due to advantages gained from economies of scale.

 

However, Wallop Tia-siri, director of the Thai Automotive Institute, told Krungthep Turakij that the retail prices of automobiles in Thailand were unlikely to be reduced significantly as a result of CAFTA.

 

"There are cost reductions resulting from the exchange of parts and components among production facilities within Asean under the zero-tariff scheme, but such a benefit is not passed on to consumers.

 

"On the other hand, the scheme will likely increase the auto industry's profits," he said.

 

Suthad Setboonsarng, a Thailand Trade Representative and former senior official of Asean, told The Nation that the price of a compact car in the range of Bt400,000-Bt500,000 should be reduced by about Bt20,000 per unit.

 

"In principle, producers' costs are 5 per cent lower due to the zero-tariff scheme, so their tax saving is about Bt20,000 per unit if the unit cost is Bt400,000 exclusive of excise and other taxes.

 

"From now on, we should closely monitor whether consumers benefit from the CAFTA scheme in prices. Governments have to part with import-duty revenues to help promote free trade in the hope that overall sales will increase due to cheaper prices and that manufacturing and investment will further expand as a result of this scheme," said Suthat.

 

Suparat Sirisuwanangkul, assistant senior managing director of Toyota Asia Pacific Engineering and Manufacturing, said auto prices in the region were stable in the wake of CAFTA's implementation.

 

He denied that there had been collusion among auto firms to fix prices.

 

"Sales of vehicles imported from other Asean countries are still very small. Both Toyota and Honda earlier faced failures when importing some models from Indonesia for sale in the Thai market.

 

"Competition in the auto sector is intense, so we cannot overprice. The Commerce Ministry also has a database on our production costs. I could say that consumers are treated fairly," he said.

 

Suparat said Toyota currently imports Innova and Avanza models from Indonesia, but the sales volume of these multipurpose vehicles (MPVs) in Thailand is relatively small.

 

At this stage, consumer tastes in Asean markets remain diverse, with pickups widely popular in Thailand, sedans in Malaysia and MPVs in Indonesia.

 

"If we export pickups to Malaysia or Indonesia, sales will be low while the transport cost will be relatively high. When other costs such as after-sales expenses or spare parts inventory are included, the selling price will still be high despite the zero import tariff," he said.

 

Pitak Peukthisarikorn, executive director of Honda Automobile (Thailand), said the Kingdom is Honda's largest production base in Asean with an annual capacity of 240,000 vehicles, followed by its Indonesian plant, which has an annual capacity for 60,000 units.

 

"Honda in Thailand produces vehicles for most market segments. In Vietnam, we produce only the Civic and CR-V models but the volumes are smaller than those in Thailand, which also exports some models to markets outside Asean," he said.

 

At present, the Honda Fleet, a 1,500cc MPV, is the only model imported by Honda from Indonesia for sale in the Thai market under the zero-tariff scheme. Its price ranges from Bt890,000 to Bt1.07 million.

 

So far, a total of 11 brands have joined the zero-tariff scheme, including Toyota (Innova and Avanza models), Malaysia's Proton, Ford Focus (via the Philippines), Mazda (via the Philippines), Nissan and Kia.

 

Meanwhile, Prasartsilp On-atta, president of the auto-parts producers' association, warned that Vietnam, which will join the zero-tariff scheme in 2015, would become a formidable competitor for Thailand in the auto industry.

 

"Once Vietnam is fully integrated into Asean, it will be very attractive for foreign investment because of lower wages and abundant natural resources.

 

"Vietnam is also physically closer to Japan than Thailand, so transport costs for parts and components are lower. I think Vietnam will catch up with Thailand in this industry in the next decade," he said.

 

Regarding China, industry sources said the major Chinese auto firms had chosen Malaysia as the gateway to penetrate the vast Asean market largely because competition in Thailand is much fiercer and Japanese auto giants are already predominant.

 

Malaysia is being positioned as the production base for China' auto firms, so that its vehicles could enjoy zero tariffs when shipped to Thailand and other Asean markets.

 

"In fact, Chinese auto-makers wanted to tap the Thai market a long time ago, but it was not possible due to the strong Japanese brands here. Thai customers are also very selective in terms of quality.

 

"In addition, we have relatively high environmental and emission standards," he said.

 

Earlier, China Youngman Vehicle Group hired Proton of Malaysia to produce a passenger-car model with an annual output of 30,000 units for export to the Chinese market.

 

Using locally made parts and components, the vehicles can also be exported to other Asean markets under the zero-tariff scheme.