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2 Jun 2006


Automotive Industry Master Plan Phase II amid Steep Oil Prices: Quality and Quantity Must Go Hand in Hand

In 2005, Thailand's automotive industry could declare success. Car output in that year reached 1.125 million units, topping one million units for the first time since the auto industry's inception. To brace for trade liberalization and build up Thailand's strength in the global arena, the public and private sectors have prepared to formulate a Master Plan for Thailand's Automotive Industry, Phase II, for implementation during 2006-2010, in succession to the Plan Phase I that was started in 2002. The Master Plan Phase II ambitiously sets a target for annual car output of two million units by 2010. Of the total car output, one million units will be sold domestically, while another one million units will be earmarked for export markets. The Plan also forecasts that exports of auto parts and spare parts should top THB400 billion per year in a bid to make Thailand a global hub of auto manufacturing or the "Detroit of Asia". To reach this goal lies in the government's policies including:

1. A clear direction for automotive development in the new decade and efficient actions. In KASIKORN RESEARCH CENTER (KResearch)'s view, a key point relative to developing our automobile industry must involve encouragement for the use of fuel-efficient cars, or automobiles that are powered by alternative energy. The manufacture of automobiles that can be competitive in the world market should also be supported over and above the production of pickups - Thailand's Product Champion. Energy-efficient passenger cars, or cars using alternative fuels, also have high potential both in markets at home and abroad. In the midst of volatile oil prices globally, the government's policies related to the automotive industry should thus adapt to this situation. In mid-May, passenger cars with 3,000-cc capacity that have been modified for NGV fuel use, i.e., Retrofitting were entitled to a reduction of excise tax from 30-40 percent to only 22 percent. Meanwhile, NGV-engine cars are subject to an excise tax of only 20 percent.

However, there must be some motivation for drivers to accept the use of alternative fuels like NGV gas. There are problems that still need improvement upon, as well as clarifications needed from the state sector, i.e., the current limited number of NGV gas stations, the impacts of these fuels on car engine durability and performance, costs related to conversion of engines to accept the fuel, especially as regards government grants of subsidies, and safety standards after installing equipment for NGV fuel use.

2. Improving the quality of personnel and increase productivity: KResearch holds the view that the issue of human resource development in the automotive industry is one of key success factors, if Thailand hopes to become a manufacturing hub for automotive exports to the global market, or become the undisputed 'Detroit of Asia'. This matter must be continuously reinforced following up on the Master Plan Phase I. Upon entering Phase II of the plan, this implementation must be intensified in a more urgent manner. Human resource development must be undertaken at all personnel levels ranging from the management, engineering, technicians and skilled workers.

3. Developing standards and research to add value to the domestic automobile industry: The issues of quality standards and development of new technologies for automobiles are also vital, if the Thai automotive industry is to strive to become a manufacturing hub truly in the global market. Therefore, R&D (Research and Development), competence in automotive engineering and design, and readiness in testing the finished products are important factors to raise the potential of the industry. Therefore, the building of infrastructure for research, design, development, and testing for the Thai automotive industry are implements necessary to support Thailand's potential to become a world-class manufacturing hub. Proposals and guidelines to set up an auto and parts testing center, R&D center and automobile test tracks have been discussed since the first Master Plan. However, at present, there is still no conclusive determination on how and when these projects will be set up, or about where the funding will come from ? the state or private sectors ? as it is forecast that the budget needed to construct and equip these facilities would total many billions of Baht.

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