Automobiles and Parts

Traditional transportation and shipping in Thailand focused upon boat travel on natural rivers, which acted as motorways, linked with man-made canals (klongs) that carried local traffic. Bangkok was once known as the ‘Venice of the East’ because of its intricate canal network and accompanying slow paced lifestyle. How times have changed!

The present day traffic volume in Bangkok has challenged city planners to upgrade available public transportation and forced motorists to endure lengthy commutes and delays in navigating the city. The traffic jams have not affected the automobile’s revered place amongst Thai people. While cars provide occupants shelter from stifling heat and frequent rain showers, they have also become a status symbol for affluent consumers in a rapidly developing country.

Thailand is now aspiring to be known as the ‘Detroit of East’, and benefiting from its position as the vehicle assembly and export hub of Southeast Asia. The trend began in 1962 when the Board of Investment (BOI) first promoted automobile assembly, which lured Nissan to enter the market. Over 15 different makers now assemble cars in the Kingdom, including all the leading Japanese makers as well as BMW, Mercedes Benz, General Motors, Ford, Volvo and Peugeot along with their legions of suppliers. The automobile industry has emerged as one of the pillars of the economy and a leading attractor of foreign investment.

Vehicle sales increased to over 200,000 units in 1999, up 50 percent from the previous year but far off the pre-crisis high of 590,000 registered in 1996. Although the local automobile market contains models from all of the world’s major manufacturers, Japanese makes have over 90 percent of the overall market and have dominated sales for some time. Steady growth is forecast for Thailand’s economy in 2000 and beyond, which translates into gains in vehicle sales that are projected to reach 280,000 units this year.

Although Thailand did not register the highest level of vehicle sales in Southeast Asia last year, it will probably overtake the regional leader soon. Malaysia, having less than half the population of Thailand, sold 280,000 units in 1999, registering a remarkable 100 percent growth over the previous year, which analysts predict is unlikely to be duplicated again soon.

By basing assembly factories in Thailand, automobile companies receive many investment incentives from the BOI, avoid import taxes, and are able to capitalize on lower labor costs. They are able to access the domestic market while gaining an important entry into the ASEAN and Oceania regions for export of production. The export of completely built-up (CBU) vehicles topped 100,000 in 1999 and is forecast to reach 150,000 units this year with the main markets being Australia, New Zealand and various African countries.

The Thai government’s policies have been successful in both attracting foreign automobile assemblers, and providing them with the market conditions to be successful. Unlike Malaysia or Indonesia, Thailand has no national carmaker and no need for measures to restrict foreign vehicle operations within the country. This non-discrimination is extended to all manufactured cars within Thailand, with recent legislation removing the Thai-source content requirement for vehicle assembly, which previously stood at 54 percent. Malaysia currently has automobile import tariffs ranging from 42 to 300 percent that shelter its national car, the Proton, from competition. All members of the ASEAN free trade area are under pressure to reduce automobile and parts tariffs to five percent by 2003 under the regional trade pact.

The future looks strong for Thailand’s automobile industry. Sales are projected to rise to their pre-crisis level of 600,000 units by 2004. Export earnings of the industry have doubled since 1995, and saw a 45 percent jump in 1999 over the previous year. If the ASEAN trade pact is fully implemented, Thai auto assemblers would have access to a potential market of 511 million consumers at tariff rates lower than those enjoyed by non-ASEAN countries like Korea. With car factories in Thailand having the capacity to produce 1 million units a year, the country is positioned to make significant gains in its export of CBU units.

There are some concerns facing the local automobile and parts industry. Many analysts believe that the long-term sustainability of Thailand’s automotive drive depends upon increased local research and development. Assemblers, and parts suppliers bemoan the lack of qualified engineers in the country and the general education level of their workers. Local parts manufacturers have generally been successful in working in unison with multinational assemblers in Thailand, but they had been protected by legislation requiring 54 percent of the vehicle to be built using local content. The recent removal of this law, along with pressure under the WTO and ASEAN, will pressure local parts makers to improve their quality up to international standards.

The coming years should see significant liberalization in the trade of automobiles and auto parts. The resurgence of Thailand’s economy will boost domestic vehicle sales, and help to maintain it as the hub of assembly in Southeast Asia.

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