IHS Global Insight Perspective | |
Significance | Ford has confirmed that it will invest in a new Thai facility, to become operational during 2012. It will be the company's first wholly owned plant in Thailand and is expected to have an annual vehicle production capacity of 150,000 units. |
Implications | The Thai government had previously revealed that Ford had placed its new vehicle assembly plans in the country on hold over environmental concerns. However, it has now revived these plans after relocating. |
Outlook | IHS Global Insight currently forecasts that the Thai vehicle market will rise by around 20% year-on-year during 2010, and at a compounded annual growth rate of 6.2% over the next five years. However, the recovery sparked by the government's focused industrial policy could be derailed if political instability continues during the months ahead. |
Ford has announced that it will invest around US$450 million in establishing a new plant in Thailand as part of its bid to expand in the Asia region. Ford is looking to capitalise on the growing trend for auto exports from the country amid a stabilising global economic situation. The facility, based in Rayong, will begin operation during 2012 and will initially produce the Focus passenger car until the future portfolio is determined in response to demand conditions. The 750,000-square-metre vehicle assembly plant will have a production capacity of 150,000 units per annum (upa), with up to 85% of its output designated for export markets. Moreover, it will be Ford's first wholly owned facility in the country. The automaker added that it will now procure auto components worth US$800 million from Thailand each year, and the new facility will help create up to 11,000 jobs (2,200 jobs with Ford and 8,800 through its supplier and dealer networks).
Ford Asia-Pacific and Africa head Joe Hinrichs backed the project, stating that, "Our new, highly flexible [Thai] plant is the latest proof point in our aggressive expansion strategy in the Asia Pacific and Africa region. It certainly affirms the vital role that Thailand has and will continue to play as a global production and export base for Ford Motor Company." He added that Thailand is a "critical production hub for Ford in the future" given its well-established automotive industry, logistics network, and export infrastructure (including free-trade agreements). "We do see a lot of potential here for Ford to bring in more products to this market. [Therefore], we need additional capacity if we are going to bring more products to this market." Peter Fleet, president of Ford's Association of Southeast Asian Nations (ASEAN) region, added that the new Thai plant "is game-changing and significant for Ford. We are looking forward to developing a more successful relationship in Thailand". Saying that the Asian vehicle market is forecast to grow at a rate of 40% over the next five to seven years, he added that, "Since 2006 we have invested over US$3 billion to aggressively expand our operations and ensure that we are not just competing in the Asia region but we are actually driving its growth."
Meanwhile, the Wall Street Journal quotes Hinrichs as revealing that Ford will next week also announce plans to increase production capacity in South Africa, as it aims to increase exports of its Ford Ranger trucks from the country to Europe and other key markets. He added that, "We have more sales potential [for Ranger trucks] than we can build. [As a result], the next generation Ranger will be also built in South Africa and will be a great opportunity for us to expand our capacity for [the] Ranger globally." However, he revealed that the global version of the truck will not be exported to the United States for the time being.
Outlook and Implications
The Thai government revealed in February that Ford had placed its potential investment plans in the country on hold, given the environmental concerns over construction in Rayong's Map Ta Phut industrial zone (see Thailand: 18 February 2010: Thai Government Confirms Ford's Local Investment Plans on Hold). However, the automaker has now avoided this issue by relocating its assembly plant to a plot owned by local company Hemaraj Land And Development. The Thai Board of Investment (BoI) has disclosed that Ford has so far invested around 50 billion baht (US$1.5 billion) in its local joint venture (JV) with Mazda, AutoAlliance Thailand, including the recently opened new US$500-million facility (see Thailand: 13 July 2009: Ford-Mazda Thailand Alliance Completes Construction of New US$500-mil. Passenger Car Plant). Moreover, Ford intends to cater to growing demand for exports of bigger passenger vehicles and pick-ups within the Asia-Pacific region and other markets from Thailand, and will focus on India for its small cars (see Thailand – India: 15 June 2010: Ford India Unit Begins Engine Exports to Thailand). The automaker has also spent more than 200 million baht since 2005 on improving its Thai dealership network as part of its global Brand@Retail programme (see Thailand: 24 February 2010: Ford to Expand Thai Dealership Network), emphasising its focus on the local market as well.
In addition to being the biggest automotive market in the ASEAN region and the 14th largest vehicle producer globally, Thailand is of key importance as a low-cost production and export base. The local government's industry stimulus programme—"Thai Khem Khaeng"—has boosted consumer and business confidence in the country during the past few months, helped further by higher agricultural product prices, stable oil prices, and recovering industrial exports. Moreover, these factors have generally safeguarded the overall economy and important auto industry, overriding the effects of the continued political turmoil in the country (see Thailand: 17 June 2010: Vehicle Sales in Thailand Rise 53.4% Y/Y During May, Exports Surge 135.3% Y/Y). Given this background, the Federation of Thai Industries (FTI) estimates that Thai vehicle output will reach almost 1.6 million units during 2010, up from its previous forecast of 1.4 million units (see Thailand: 25 May 2010: FTI Expects Thai Vehicle Industry to Reach 1.6 Mil. Units During 2010).
However, the road to success for Ford in Thailand will not be easy during the months ahead, despite the government support measures and other incentives. An upsurge in interest rates, rising oil prices, and the unstable political situation could hurt the local market in future. FTI vice-chairman Adisak Rohitasune recently expressed his hope for the local industry, stating that, "If there are any new investments made [in the Thai market this year], they will probably be for new products or new projects. This is because there is still enough capacity left [to be harnessed in the country]." However, IHS Automotive currently expects that it will take almost three years for the Thai automotive industry to fully utilise its existing annual production capacity of 1.8 million units in light of the still uncertain global industry outlook and domestic political situation.