Features
18 Feb 18

Automotive Outlook Thailand

The automotive industry in Thailand is booming business and a true GDP contributor (+8%). Thailand produces roughly 2 million cars on annual basis, putting the country ahead of many European car manufacturing nations.

Thailand as the region’s car exporter

The reason why Thailand has evolved to becoming a car producer, is historic. In the beginning of the 70’s, the country was suffering from a large trade deficit. The Thai government took a number of measures to promote local production and installed high import taxes (up to 150%) on vehicles built abroad and, at some point in the late 70’s, even forbid importation.

But in need of more investment and eager for the Japanese to improve the local car industry, restrictions became less severe. Mitsubishi was the first Japanese OEM to start building cars in Thailand, the other Japanese manufacturers followed quickly, and so did the South-Koreans. All of the OEM’s focused mainly on low-priced vehicles for the local market – a big hit, leading to a steady +10% growth all the way to 1996.

When the Asian Crisis hit the country in 1997/1998, the OEM’s had to deal with a gigantic overproduction : local sales only covered for half of local production. This is when Thailand started to focus on export, quickly becoming a net exporter of cars.

This trend has been consolidated and reinforced ever since : the ASEAN free trade market, consistent GDP growth and governmental incentives have been beneficial to Thailand. Although most of the automotive decisions are made in Tokyo and Detroit, Bangkok is still producing and exporting an increasing amount of cars.

Registrations

Local TIV (Total Industry Volume or registrations) is still recovering from a huge dip that occurred in 2014 (2013 : 1.33 million registrations – 2014 : 0.88 million registrations), when the NCPO (National Council for Peace and Order) succeeded in organising a coup against the ruling government. Recovery has been slow – also due to the massive household debt that reaches almost 80% of the national GDP. The ratio household debt versus GDP is now finally starting to decline, but this is mostly due to a strong GDP growth.

In 2017, the total number of registrations reached 850.000 units, more than 10% up from the 770.000 registrations in 2016. Most of the vehicles sold in Thailand are commercial vehicles (467K units versus 384K passenger vehicles). The reasons given for the increase are economic growth (3.9% GDP growth), increase in consumer confidence, the launch of several new or facelifted popular models (Honda H-RV, Toyota Fortuner and Isuzu D-Max) and attractive promotions on vehicle sales.

The growth could have been bigger though, were it not for the impact of the high household debt, leading banks to be hesitant to approve loans, and the new excise tax calculation. This tax was previously calculated based on the CIF (Cost, Insurance, Freight – or “production and distribution cost”), but is now calculated on the retail price.

Another major factor is the end of the First Car Buyer Scheme, a government incentive for first time car buyers, who received subsidies, but had to keep their cars for 5 years. This initiative generated massive sales upon its launch in 2011, but obviously impacted sales for the next 5 years.

Preferred Passenger Cars

As car taxation in Thailand depends, since 2016, on engine size and CO2 emission, most Thai consumers prefer the so-called Eco Cars, i.e. vehicles with CO2 emission below 100 g/km and engine size below 1.5 litre. It is therefore no surprise that this segment shows the highest growth (37.3% / 89K units). Nevertheless, the + 2 litre segment is still the most popular, reaching 108K units.

The most popular brands are Honda (33%), Toyota (23%) and Mazda (11.4%), which means that the top 3 occupy 67.4% of the total sales. European are not scoring well, due to import taxations and higher MRSP’s, with Mercedes leading (3.8%), followed by BMW (2.4%).

Hybrid and electric vehicles are becoming more popular, stimulated by tax advantages, but still occupy a minority of the total car sales (0.1%).

Preferred Commercial Vehicles

One-ton pick-up trucks are very popular (almost 90% of all commercial vehicle sales). The high demand is stimulated by a growing agricultural economy and tourism sector, but at the same time held back by less positive performance of the SME sector; due to a higher amount of NPL’s (nonperforming loans), the banks have become more strict in the approvals of credit lines.

Isuzu is leading the ranking (35.2%), followed by Toyota (29.6%), Ford (10.9%) and Mitsubishi (9.7%). Toyota used to be at the top, but has lost volume to Isuzu

Outlook

The Thai Car registrations are expected to grow further by 7.6% in 2018. In favour of growth are

  • Economic growth
  • Infrastructure development, which will boost demand for light and heavy trucks
  • Growing middle class
  • Steady increase in vehicle export
  • Expected new models (Suzuki Swift, Toyota Camry, Honda
  • Accord, Nissan Terra, Ford Ranger Raptor, Nissan Leaf BEV and Note epower)

The growth however will be impacted negatively by

  • High household debt
  • Weak agricultural prices, impacting the SME and the corporate
  • New Excise Tax calculation

The total amount of registrations is forecasted to reach 915.000 units.

The data used in this analysis come from the Frost & Sullivan study “Automotive Market Outlook 2018 : Thailand”. Frost & Sullivan’s Mobility unit does extensive research on the Asian automotive and mobility environment. For more information, contact the editor yhelven@nexuscommunication.be
Authored by: Yves Helven