Thailand Auto Market Accelerates Into Overdrive
Oct. 29 – Thailand is increasingly gaining a reputation as the “Detroit of the East,” in reference to the golden age of Detroit when it was the world’s automobile factory. Thailand is well on its way to becoming one of the most attractive places in the world to manufacture automobiles.
One of the main reasons why Thailand is so appealing is due to its very low labor costs. For example, its costs are one-fifth that of Japan, one-third that of Korea and even lower than the costs in China.
Thailand represents Southeast Asia’s largest automobile market, largest automobile manufacturer in ASEAN, and the 9th largest manufacturer in the world. According to Toyota Motors, in 2012 Thailand sold around 1.43 million units in Vietnam’s domestic market. It exported an additional one million automobiles for a total 2.43 million units coming off the country’s production lines. The country has come a long way from it small beginnings – in 1995 the country only exported around 8,000 units.
As the Thai try to copy the export-led growth model pioneered by the Japanese in the recent past, local production capacity is accelerating as the country makes the move to global exporter powerhouse. Mitsubishi has become the first auto company to begin exporting Thai-made cars to the United States. Thailand already exports to around 140 countries, including to Japan and a variety of countries in Europe.
The Thailand Automotive Institute predicts that by 2015 the country will be exporting about 3.4 million vehicles per year. Toyota is the biggest manufacturer in the country and will remain so for the foreseeable future – by 2021 it is expected to be producing 884,000 units per year.
The automobile industry contributes 12 percent of Thailand’s total GDP, thus making it the country’s third largest industry. What makes Thailand stick out in particular is the fact that 80 percent of its production input comes from locally manufactured parts.
In order to take advantage of Southeast Asia’s flourishing economy, and to free production capacity elsewhere, many automotive companies are looking to greatly increase production in Thailand. These companies include BMW, General Motors, Honda, Nissan, and Toyota. Almost all of these companies are looking to expand their existing factories’ capacities or build entirely new facilities. In addition, a number of Chinese companies are looking to expand their operations to Thailand so that they too can engage in “reverse importing.”
Vietnam is seeing its auto industry struggle as it seeks to compete with Thailand, where many of the automobiles are made in free-trade zones and where parts are imported without duties or are sourced locally. Further hurting Vietnam is its planned elimination of industry import duties. This could theoretically make it cheaper to simply build the automobiles in places such as Thailand and then import them into the country.
Thailand’s auto industry does have some drawbacks, however. Chiefly among them is quality. However, companies that are exporting overseas, particularly to Japan, have implemented rigorous quality control systems in order to ensure consistency in their products.
Additionally, the speed of the work is slower than manufacturers in countries such as the U.S. or Japan. This is mostly due to the lack of automation and reliance on physical workers. However, this is also what helps to keep costs down and makes Thailand an attractive destination.
According to LMC Automotive, sales of light-vehicles in the ASEAN region will grow 40 percent by 2020. Production numbers in the region will increase 53 percent over the same time period. Thailand will be at the wheel of this growth and will help accelerate the region into a profitable future.
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