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18 Aug 2006


Decelerating Domestic Automobile Market: Proof of Concept − Detroit of Asia (Business Brief No. 1848)

In the first 6-7 months of this year, conditions in the Thai automotive market were clearly sluggish compared to preceding years, due to many negative factors. This lethargy has been the result of consumers slowing their automobile purchases because of uncertainty about the economy. Thus, the domestic automobile market in 2006 has exhibited signs of deceleration, evidently for the first time in an 8-year period. It is forecast that the growth rate of the domestic market this year will fall to its lowest level since the economic crisis in 1997-1998. However, while the domestic market stumbled somewhat in the first half of 2006, exports of automobiles and parts continues to grow, which is hoped will lead this industry toward reaching the target of becoming the Detroit of Asia, or a manufacturing hub to export automotive vehicles to the global market in the future. KASIKORN RESEARCH CENTER has studied and summarized key points in the following:
Situation in the Domestic Automobile Market
As 2006 approached, many negative factors started to appear, i.e., turmoil in domestic politics, steadily rising oil prices, higher inflation and interest rates which affected the domestic economy, as well as the automobile industry. All of these factors have resulted in consumers slowing their car purchase decisions, being unsure of the economy. Sales of automobiles in the first 6 months of 2006 (H1/2006) dropped 3.2 percent from the same period of last year, and lately the sales figures for the first seven months this year (7M-2006; Jan-July) also fell 2.86 percent to a volume of 385,414 units. Therefore, it is forecast that aggregate domestic sales for all of 2006 may be much lower than the 12.4 percent growth seen in 2005.
However, the second half of the year is a high season for the automobile market, wherein normally sales will be better than during the first half, and if politics take on a clearer direction, and inflation as well as interest rates begin to stabilize, this would boost consumer confidence toward increased spending. In addition, car companies will be launching new models onto the market, and there will be sales campaigns to stimulate volume, as well. These factors are believed will stimulate sales in H2/2006, and will result in higher sales for the entire year. However, growth in the domestic market this year will likely grow only 3 percent, which would be the lowest level since the market's recovery after the economic crisis.
2. Outlook for Automotive Exports
Though the domestic economic slowdown has hurt the auto market at home, automotive exports are enjoying steady growth, aided by global economic expansion and the relocation of manufacturing for several car models into Thailand, as well as the result of the trade liberalization. In terms of volume, automotive exports will likely reach the level of 500,000 CBU units to a total of 560,000-570,000 units, representing a 30 percent increase over last year. Vehicle exports during the first six months of this year amounted to 263, 831 units, up 35.9 percent over the same period of last year. Evidently, while the domestic market slowed this year, exports for Thailand's automotive industry remained bright.
3. Potential to Become the ;Detroit of Asia”

As a result of confidence in the development potential of Thai auto industry over the past 30 years, supported by the government together with domestic growth and the readiness of auto parts and other downstream industries that have been expanding alongside the auto industry, major auto manufacturers has been attracted to relocate production to Thailand. Presently, auto-manufacturing giants from Japan, Europe and the US have set up factories in Thailand, making the country SE Asia's largest car-manufacturing hub. Investment has been expanded continuously to use Thailand as a production base to supply the global export market. Major car companies from overseas have gradually transferred or expanded their manufacturing in Thailand; for example Isuzu, General Motors, Honda, Ford/Mazda, Mitsubishi, Nissan, and others are focusing on increased exports. These car producers have been benefited from concessions on customs tariffs as part of the ASEAN Free Trade Agreement (AFTA) and bilateral FTAs with some other countries, in particular Australia, which has contributed to a significant increase in Thai automotive exports. At present, leading automotive manufacturers are continuously increasing their production capacity despite the national economic slowdown and political stalemate.

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