The Thai Automotive Market

• WRI

Up until 2005, Malaysia was largest motor vehicle market in the ASEAN region. From then on, Thailand has been the darling of car makers looking for a gateway into this combined market of approximately 600 million people. Although Indonesia is rapidly catching up, Thailand still edges ahead with a very well developed supporting eco-system and a wide automotive parts supply chain to tap on to. Japanese car makers have enough confidence in Thai manufacturers and workers to designate Thailand are global source for models like Honda City, Toyota Hilux, Toyota Corolla, Nissan March, Nissan Navara. For models like the Nissan March, Japan actually imports it from Thailand. Japan Automobile Manufacturers Association (JAMA) rates the quality of Thai made automotive parts as the best in ASEAN. The local part manufacturers supplies approximately 80 per cent of all the parts used for the assemble of pickup trucks, approximately 55 per cent for passenger cars and nearly 100 per cent for motorcycle.

Source : ASEAN Automotive Federation

Much has been said about Thailand as an automotive export powerhouse. But how does the domestic car market in Thailand actually looks like?

Source : Toyota Motor Thailand. Toyota dominates. Proton has a 0.7% market share, above Hyundai 0.6% and Kia 0.1%

For a start, it is heavily dominated by Japanese brands, which controls 88.6 percent of the Thai market as of December 2011. Tier-One brands, with over 10 percent market share each, Toyota, Isuzu and Honda sells 64 percent of all cars in Thailand. Among the three, Toyota controls the lion's share, nearly two out every five vehicles sold in Thailand is a Toyota. Tier-Two players, with less than 10 percent market share, Nissan, Mitsubishi and Mazda together controls 22 percent of the market. The largest non-Japanese brand is Chevrolet, with a 4 percent market share, followed closely by Ford at 3.7 percent. The top selling luxury brand is Mercedes-Benz, although the Stuttgart outfit's lead over BMW is just a whisker under 850 units.

The industry's annual sales volume is around 800,000 units while production volume is around 1.6 million units, with the difference being the export volume. Thus Thailand is a nett automotive exporter. Market leader Toyota expects the Thai market to break the psychological barrier of 1 million domestic motor vehicle sales  this year.

Pick-up trucks are still the most popular body type, constituting 41 percent of 2011 car sales, although automakers are starting to see a gradual shift to low cost passenger cars. Around 5-years ago, pick-ups constitute around 60 percent of the TIV (total industry volume). Between 2010 to 2011, the pick-up segment contracted by 6 percent while passenger cars, rose 4 percent, motivated by new tax incentives like eco-car and first-time car buyer scheme, both which are limited to small passenger cars.

Toyota Soluna, first generation Vios.

In the past, pick-ups are favoured because they are cheaper, as excise duties for pick-ups are only at 3 percent, versus 30 to 40 percent for passenger cars. In the early days, there weren't low cost sedans like the Toyota Soluna, whose replacement model was known as the Vios and later made available by Toyota to neighbouring countries like Malaysia. Trucks were seen as a reliable utilitarian transport suitable for what was then still a highly agrarian economy. Thai consumers used their trucks for both their work and family use. Subsidized diesel, at around 30 THB per liter (around RM 3 per liter) also makes trucks a more economical option. Petrol retails for around 43 THB (about RM 4.30 per liter). Both fuel types are still far more expensive than in Malaysia.

Unlike Malaysian small business owners, the Thais rely on converted trucks as the main workhorse for SMEs, compared to half-ton vans and pick-ups like the Nissan Vanette / Daihatsu Granmax commonly seen in our night markets.

Also related to pick-trucks are the so-called pick-up passenger vehicles (PPVs), a segment that was mooted by the government sometime in early 2000. PPVs are truck-based SUVs, attracting a lower 20 percent excise duty, compared to regular passenger car based SUVs which are taxed from 30 percent upwards. The first product to comply to the PPV criteria is the Isuzu Mu-7, based on the D-Max. At one time it was the market leader but the aging Mu-7 has since rescinded that title to the Toyota Fortuner, based on the Hilux.

Isuzu Mu-7, the D-Max's SUV cousin and the first PPV in Thailand.

PPVs make up around 5 percent of the market. Sales of PPVs are often lumped together with 1-tonne pick-up trucks so caution is required when making conclusions. Similar to the truck segment, PPVs have been contracting, at 6 percent between 2010 to 2011.

Passenger cars started to increase in popularity when Toyota introduced an affordable low cost Soluna sedan. Thus also explains why the Thai market Vios was at one time (second generation model) sold as the Soluna Vios. Success of the Soluna sedan convinced Toyota to expand the Soluna's market by making it available to neighbouring countries like Malaysia and Indonesia.

Nissan March - first eco-car on the market. Thailand and India are the two global hubs for the March.

In 2007, the government announced a so-called Eco-Car incentive. Eco-car projects are exempted from corporate income tax for 8 years, enjoys duty free importation of machinery. An additional offer from the Thai Ministry of Finance provides a lower 17% excise tax rate on eco-cars that have engines smaller than 1,300cc for petrol engines and 1,400cc for diesel engines (current excise tax rate is between 30%- over 50% for normal passenger cars).

Requirements to qualify for eco-cars are :

• Minimum investment value of approximately US$ 144 million
• Actual production capacity must not less than 100,000 units per year from the fifth year of the projects operation.
• Fuel economy rating of not over 5 litres per 100km or 20km per liter.
• Comply to at least EU4 emission standard with CO2 emission below 120g/km.
• Comply to UNECE Reg. 94 and Reg. 95 frontal and side impact crash safety standards.
• The production of a minimum of 4 out of the following 5 key engine parts are mandatory to receive promotion privileges: cylinder heads, cylinder blocks, crankshafts, camshafts and connecting rods. The manufacture of cylinder Heads, cylinder Blocks and Crankshafts must start in the machining stage.

Adoption of passenger cars increased in 2010 when the first eco-car, the Nissan March was launched, this was soon followed by the Honda Brio.

At the end of last year, the Thai government introduced the so-called first time car buyers scheme. Qualified buyers stand to gain up to THB 100,000 (about RM 10,000) in vehicle tax rebates.The scheme however is limited only to locally assembled passenger cars below 1.5-liter and pick-up trucks below 1 million THB.

Ford and Proton, lodged a protest saying the scheme is unfair and puts them at disadvantage. Both the Fiesta and Persona, with a 1.6-liter engine do not qualify for the tax rebates. Proton's importer in Thailand, Phranakorn Auto Sales Co., was said to have approached  the Malaysian embassy in Thailand to present their case, saying the scheme is a violation of free trade and not in accordance to agreements of WTO and AFTA. Of course, mindful of its own protected car market, Malaysia did not pursue the matter further, leaving Proton at the losing end of last year's Thai auto sales.

One of the most ubiquitous form of public transport is the 'tuk tuk' trike. Despite its synonymity with Thailand, tuk tuks orignated from Japan. They became obsolete as Japan progressed, coupled with safety and emission regulations. Eventually, many of these Japanese tuk tuk manufacturers and their part makers established operations in Thailand and has continued from there ever since.

There are actually many variations of 'tuk tuks' and they are not always three-wheelers. Move out of Bangkok capital and into the outskirts, converted 'kei' type Daihatsu and Suzuki four-wheeler mini trucks with a make-shift covered deck are the 'tuk tuks.'

Tuk tuks in Phuket are four-wheeler Daihatsu / Suzuki mini pick-up trucks

Many of todays three wheeler tuk tuks have been converted to run on CNG but there is no further development to it and the iconic tuk tuk is now in its twilight years.

Because of its high reliance on Japanese manufacturers, Thailand was especially hit hard by the March '11 Japan's Great Tohuku earthquake and the disastrous flood late last year. Thai motor vehicle production output took a big hit and dropped 11 percent, while vehicle sales dropped 0.8 percent from last year.

Toyota Motor Thailand, the biggest automaker in Thailand suffered one of the largest production loss, 150,000 units (Honda was worst hit). However, Toyota, along with other Japanese car makers have reiterated that they will continue to invest in Thailand and even donated huge sums to aid in flood relief efforts. "We will stand by the community as we help Thais to overcome this obstacle," said Akio Toyoda, president of Toyota Motor Corp. “I want to confirm that Honda will not move its manufacturing to another country. We will stay close to our customers and Thai society,” said Pitak Pruittisarikorn, executive vice president of Honda Automobile (Thailand).

Despite frequent political instability in Thailand, the Thai civil service does not suffer from the 'little Napoleon' syndrome that plagues our civil service. Although their PMs come and go and the ruling parties keep changing, their industrial policies however, remain. This stability and right execution of policies drafted gives car companies the confidence to continue pouring money into Thailand. Japanese companies view the recent flood as an unfortunate one-off event.