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16 Dec 2008


US Auto Crisis: Impacting Thai Automotive Industry (Business Brief No.2378)

The US battered automotive industry is now comatose in light of the auto bailout scheme worth USD 14 billion failing to pass the Senate. The three largest US automakers will evidently feel the impact, which will have a domino effect rippling through the whole auto industry and related industries. For now, it is expected that the US authorities will eventually grant approval for the financial rescue plan for the ailing auto industry. However, if the rescue package is proved to be too late or too little, or if the economic situation becomes worse than expected, wide repercussions may be inevitable. KASIKORN RESEARCH CENTER (KResearch) has analyzed impacts of the US auto crisis on Thailand, with key points of note as follows:
High level of anxiety has been arisen that if the three US auto giants - widely known as the Big Three - become insolvent, the US economy may be catastrophically damaged. The impact will be felt through the automotive workforce totaling around 3.5 million workers, or some 2.4 percent of the overall US workforce. The unemployment rate may skyrocket to around 8.9 percent from currently 6.7 percent. The rising jobless rate will even worsen the sinking US economy. Other ripple effects will include the US government's budget crisis, especially the payouts of pensions for retirees and healthcare benefits. The US government will also be threatened by shortfalls of more than USD 100 billion in tax revenue in the three years ahead if the US Big Three - representing half of the US automotive market value – are let to collapse. Even worse, this will pose a fundamental threat to the US financial system's viability. The US financial market may encounter another crisis as the US Big Three and their auto finance associates represent as high as 10 percent of the high-yielding bond market. It is undeniable that the US financial crisis will extremely escalate.
For Thailand, local automotive industry will feel the impact both directly and indirectly if the three largest US auto manufacturers go bankrupt. Impact on the US Big Three's ventures here may be seen in their structure and competiveness. As the parent companies are plagued with liquidity crunch and weakened competitiveness, their subsidiaries in the region including Thailand may experience production cutbacks, which may derail their production and investment plan, thus eventually affecting employment in their supply chain. This will end up jeopardizing our ambitious goal of increasing domestic auto production to 2 million units within 2011 under Thailand's Automotive Master Plan. Not only the auto industry, but also related industries, i.e., the auto parts will be hit hard if they engage in heavy trade relations with the US Big Three, especially via exports to the US.
Even so, the US auto industry's fate remains clouded by uncertainty. The US government may eventually provide financial rescue funds to the ;Big Three” automakers. The issue is expected to be considered in the US Congress slated for January 6, 2009 or after the inauguration of President-elect Mr. Barack Obama who is inclined to give a lifeline to the US Big Three. In addition, the Democrat's policy platform focuses on solving the unemployment problem. Attention should thus be paid on this development. During the policy vacuum, however, much will depend on how soon and effective the US government will lend a helping hand to the struggling US auto industry. If the effective assistance is granted sooner, the Thai industry may receive a boost. On the contrary, if the three largest US automakers are left collapse, it will be very catastrophic to the US economy, leading to a deepening and lingering recession which will have ripple effects through the global economies. Thailand is no exception and our economic recovery will be a painful process. Finally, foreign investments, especially those related to auto industry will be put in a standstill until we see the economic improvement.

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