Different strokes to hit growth targets of Asian auto sector

autoIN the highly competitive global automotive sector, Asia asserts dominance in the field pitting against the rebounding US. Looking at China, India and the ASEAN bloc, each has succeeded in weathering challenges in varying levels through the strategies employed. But which strategy calls the shots?

UK-based research firm LMC Automotive predicts that global automotive sales will climb 2.4% to 82.7 million this year. The car sales boost can help pull up rubber prices especially for the top Asian rubber producers of Thailand, Indonesia and Malaysia, which account for 67% of global output. Demand for rubber, mostly for tyres, will increase and reduce the surplus by 61% this year, as the three countries continue to stockpile rubber, cut down trees and reduce exports to boost prices.

Meanwhile, global consultancy firm Ernst & Young, in its recent market report on Light Vehicles, forecasts a significant transition for the sector in the ASEAN region, owing to the flourishing economic activity and strengthened purchasing power.

Also cited in the report is a 10.6% CAGR in an eight-year period starting from 2011, culminating to
4.1 million units by 2019, of which, more than 40% will come from Indonesia and 33% from Thailand.

More R&D to achieve goals in China

China’s mired economy is gradually bouncing back and vehicle sales, including buses and cars, are expected to increase by 5%, according to the China Association of Automobile Manufacturers (CAAM). It says that total automotive sales, including passenger and commercial vehicles climbed 4% to 5% last year
to an estimated 19 million units. The association expected sales to recover this year at an increased

It also forecasts that China will be in for maelstrom competition against foreign markets that will increase incentives to gain market share by engaging local automotive makers.

This year, growth pace will be slower by 25%,compared to the average in the past 14 years,even though the industry continues to expand.

The group said that China, in order to maintain its standing as an automotive superpower, needs to increase its focus on R&D by leveraging on government support.

Presently, automotive makers allot less than 2% of their revenues on R&D, which is merely half
the global average.

Institutionalised support for growth in India

India’s automotive sector continues to show strength, with US-based market analyst Research and Markets stating in a recent report that the industry’s turnover will reach US$200 billion through 2016. It also indicated that most global OEMs have established presence in India amidst a limited supply base, which is
attributed to low production volumes.

According to the report, Maruti Suzuki, Hyundai and Tata Motors collectively account for 76% of the passenger car market, in terms of volume, and only suppliers with strong linkages to the Asian OEMs have easier access to orders. Automotive makers like Ford Motor and Hyundai Motor also use India as a low-cost
vehicle production hub and a springboard to further expansion in Asia. India’s rapid expansion is
aligned with the national Automotive Mission Plan’ s projection that by 2016 the sector will have
accounted for more than 10% of India’s GDP and employed 25 million more people than it did in 2006.

With the National Electric Mobility Mission Plan in place, more technologically-engineered tyres, which are safer and may reduce road accidents by 5%, are being introduced, according to MF Farooqui, Secretary of the Department of Heavy Industry.

However with all that it has going, the country’s efforts to promote the local car industry are not clearly drawn up in the new Union Budget for 2013-2014, given that the excise duties imposed on most categories of imported cars remain unchanged at 12%. That combined with the high interest rates and increasing diesel prices, sales of passenger cars and vans are expected to generate modest growths.
Thai land: benefiting from Japanese investments.

The country still holds its title as “Asia’s Detroit” and in fact new investments are pouring into the sector, with the country’s local capacity forecast to rise 30% to 3 million units by 2015, according to Macquarie Group. The automotive sector in Thailand is a key pillar in the country’s economy, growing at around 8.1% of GDP.

Nissan, Japan’s second-largest carmaker, plans to invest US$369 million to build a second plant in Thailand while Honda said recently it will invest about 44.6 billion yen in a new factory with annual capacity of 120,000 cars.

Meanwhile, Toyota Motor, which has three factories in the country, exported 406,000 units out of the 880,000 Hilux trucks, Fortuner SUVs, Innova vans and other vehicles it built there last year, the company said. These sales have helped the Southeast Asian nation overtake China as Toyota’s third-biggest global production hub last year.

The biggest growth driver for Thailand’s automotive industry is the expansion of its export capacity, plus the country has fewer labour issues compared with China or India, said Koji Endo, an analyst at Advanced Research Japan.

Philippines: anti-dumping laws to help domestic sales
The Philippines is planning to subdue the imports of vehicles from major Asian automotive makers in order to protect the local industry. The Ministry of Finance and the Department of Trade and Industry are jointly drawing moves to file anti-dumping cases against some Asian automotive makers. It is zeroing in on exporting countries that declare lower production value or sell their cars at lower prices compared to their home markets, though the move can also increase prices (of the imported cars) for domestic
consumers as well as impact sales of imported cars.

According to recent data, car firms including Hyundai, Chevrolet and Subaru, sold a total of 28,400 units last year, up 14% from 24,880 units a year earlier, while sales of light commercial vehicles increased by 9% to 12,116 units.

The free trade agreement continues to stunt local vehicles sales whilst the imported ones are expecting sales growth of 10% this year amidst the country’s economic progress.

The Philippine’s 16-manufacturers automotive sector accounts for 12% of the country’s industrial sector output, lagging behind Thailand, Indonesia, Malaysia, and Vietnam.

Malaysia: levy cuts to promote investments
Another car making country, Malaysia’s previous strategy of imposing a duty of 15% and 13.6%, respectively, on imported cars from Japan and Australia, backfired when the country failed to generate further investments, losing out to incentive-friendly Thailand.

Moreover, an excise tax of between 65% and 105% as well as 10% sales tax that are imposed to provide local car makers Proton Holdings and Perusahaan Otomobil Kedua a better edge in the domestic market, are also hindering foreign car makers.

However, the country is reversing the strategy to attract foreign car manufacturers and will start reducing duties by 2016.

Myanmar: looking to increasing its exports
Myanmar, currently ranked seventh in rubber production in Southeast Asia, behind Thailand, Indonesia, Malaysia, Laos, Cambodia and the Philippines by the International Rubber Research and Development
Board (IRRDB), is poised to serve the international automotive market, now that its exports have increased by a third this year.

The country has intensified promotion of its rubber, which is comparably lower priced than what is offered in other Southeast markets. Having entirely depended on exports to China last year, the country is looking to exporting more of its rubber to South Korea, Vietnam and Singapore. It is also building
interests from Germany, Austria, Denmark and New Zealand.

The Myanmar Rubber Planters and Producers Association (MRPPA) projects that this year sales of rubber will reach 150,000 tonnes, up from 95,000 tonnes last year. (RJA)