BANGKOK — Japanese automakers have for years held sway over nearly 90 percent of the market in Thailand. Now they are struggling to cope with an abrupt turnaround in the country’s economic fortunes.
The market here has enjoyed steady growth, reaching a record 598,000 autos in 1996. However, many industry analysts predict that the country’s recent economic crisis will cut that figure to less than 400,000 this year, and that the market will probably not recover by the end of the decade.
“It will take two to three years before the market recovers to the current level, considering Thailand’s past experience,” said Shuji Saito, sales and marketing director at Honda Cars Thailand Co., a subsidiary of Honda Motor Co.
Thailand experienced a similar economic slowdown in 1984 following the baht’s devaluation and it took until 1987 for the auto market to recover, he said. The current turmoil has hit Thai consumers hard, especially those with middle- and lower-level incomes — potential customers for commercial vehicles such as pickup trucks, Saito said.
Prices vary from model to model, but pickup trucks, which have tax incentives, are generally much cheaper here than four-door sedans. Commercial vehicles dominate nearly 70 percent of the Thai market.
While passenger vehicle sales showed a 3.1 percent increase in the January-July period over the same period last year, those of commercial vehicles dropped about 25 percent. Honda officials estimate that to afford any car, a Thai buyer must have a monthly income of at least 20,000 baht (about 75,000) yen. But with more people now at risk of either losing their jobs or taking salary cuts, the consumer base is shrinking fast.
Another blow to both automakers and potential customers is the all-too-frequent suspension of finance companies’ operations. The government has so far ordered 58 of the nation’s 91 existing finance companies to suspend business because of excessive nonperforming loans. With the suspensions, the number of finance companies that provide auto loans has dropped from about 30 to only five, according to Takashi Murasawa, president of MMC Sittipol Co., a Thai subsidiary of Mitsubishi Motors Corp.
“Because we don’t have finance companies ourselves, we have no choice but to rely on the remaining five finance companies,” he said. “This is a severe situation.” Toyota Motor Co., Isuzu Motor Ltd. and Mazda Motor Co. have their own subsidiary finance companies, but they too have tightened down on loan approvals. The deposit required to arrange auto loans has risen from between the 15 percent and 25 percent range to the more lofty neighborhood of 35-45 percent.
Also, the baht’s depreciation has increased production costs for automakers because parts and materials are more costly to import. Automakers have tried to increase the local content rate over the years, but many parts or raw materials must still be imported.
Imported parts from Japan make up 30 percent of Mitsubishi’s Strada pickup, manufactured at the automaker’s plant in Chon Buri. Although the rest of the parts are made locally, many use imported materials, MMC’s Murasawa said.
In the wake of the baht’s fall, Toyota and Isuzu, two giants in the Thai market, raised prices an average of 3 percent as of Sept. 1. Other carmakers are poised to follow suit. “More price increases are expected in the near future,” Toyota executive Koji Hasegawa said. “If we don’t raise prices, we cannot cover the increased production costs caused by the depreciation of the baht.”
Such moves are likely to put a further damper on auto sales. Most carmakers have already slashed their production plans for this year. As a result, their workforces have been substantially reduced and their hours have been cut almost in half.
However, some U.S. automakers are planning to start production in Thailand, mostly for export, in the near future. Ford Motor Co. and its Japanese affiliate Mazda plan to begin production of pickups at their new Thai plant next year. General Motors Corp. is to begin passenger car production in 1999.
Toyota’s Hasegawa said that shifting the carmaker’s export base to Thailand hinges on being able to rationalize the costs of raw materials, labor forces, interest rates and equipment investment. “In the case of Thailand, out of those factors, only the labor costs are lower,” he said.
But some industry people believe that even companies like Toyota may be forced to export more in the near future to find markets because local demand is unlikely to keep pace. With all of those carmakers increasing investment in their plants in Thailand, the gap between sales and production will widen. The battle in Thailand and elsewhere in Southeast Asia is expected to intensify by early next decade.
MMC’s Murasawa said he initially estimated that sales in Thailand would reach 800,000 autos in 2000, with production levels hitting 1.2 million units. “But the recent economic slowdown now makes me feel that the Thai domestic market will not even recover by 2000, and we will face tough competition,” he said.