Thai automotive industry slumps in 2014, Toyota explores new growth markets

New vehicle sales in Thailand fell 21.4% year on year (y/y) in December to 89,504 units, according to data released by the Thai Automotive Institute (TAI). Vehicle production also remained under pressure, falling by 3.3% y/y to 153,669 units, although exports of completely built-up (CBU) units gained 1.4% y/y to 89,146 units during the month. Full-year sales plunged 33.7% y/y to 881,832 units, while total vehicle production stood at 1,880,007 units, down 23.5% y/y. CBU exports remained flat at 1,128,102 units during 2014.

In terms of individual performances, a majority of the country's top-selling automakers posted significant declines in 2014, with market leader Toyota suffering a 26.6% y/y fall in its full-year sales to 326,457 units, according to details released on its local website. Isuzu came second with sales of 160,286 units (down 22.3% y/y), followed by Honda (106,482 units, down 50% y/y), Mitsubishi (62,885 units, down 39.9% y/y), Nissan (59,220 units, down 39.7% y/y), Ford (38,087 units, down 25.6% y/y), Mazda (34,326 units, down 35.1% y/y), Chevrolet (25,799 units, down 54.2% y/y), and Suzuki (20,183 units, down 55.4% y/y). Mercedes-Benz was the only automaker in the top-10 best-sellers list to post a sales gain, of 12.8% y/y to 11,524 units.

Toyota exploring new growth markets within Indochina

In a separate development, Toyota is reportedly exploring plans to seek out new growth markets within the Indochina region to spark additional sales in the hope of offsetting sluggish demand in Thailand. According to the Bangkok Post, Kyoichi Tanada, the president of Toyota Motors Thailand, revealed that a new unit, named Mekong Region Virtual Company, had been set up in Thailand to oversee the firm's Indochina operations with the target of achieving sales of about 125,000 units in the region through to 2018 (excluding Thai sales). "The Indochina market may be very small now, but our parent company aims high for the region, where the population totals about 240 million people including Thailand…The imminent ASEAN [Association of Southeast Asian Nations] Economic Community [AEC] will be the key driver for vehicle sales in the region," Tanada said.

Tanada went on to add, "[Based on 2014 sales figures], Toyota now has a 33% market share in Vietnam (with sales of 41,000 units), 50% in Laos (with sales of 12,600 units), 33% in Cambodia (with sales of 1,100 units), and a 10% market share in Myanmar (with sales of 200 units)." Tanada also said that with the Thai market almost nearing saturation point, with an estimated car ownership ratio of about one car per two people in major cities, "potential sales in other Indochina countries are bountiful, as many people have never owned a single car...We expect the new Indochina strategy will help boost production capacity of the three plants in Thailand to an average of 900,000 to 1 million units per annum [upa] in the future from 770,000 units currently".

Toyota expects 2015 industry sales in Thailand to rise by 4.3% y/y to 920,000 units, while the automaker sees its own sales in the country climbing by around 1% y/y to 330,000 units during the year.

Outlook and implications

Thailand's automotive industry suffered in 2014 largely on the back of the prolonged political crisis, which has hurt business and consumer confidence for the past several months. The Thai military declared a coup in late May and took control of the government, and it is taking measures aimed at restoring waning confidence levels (see Thailand: 21 May 2014: Thai army declares martial law amid political unrest; new ray of hope for manufacturing industries). Although there are some ongoing concerns over the short-term prospects for the Thai automotive industry, the approval of promising eco-car projects, along with several long-term investment plans by global automakers in Thailand, means that the long-term outlook remains positive, and Toyota's move to diversify its market presence essentially supports this. Oracha Sakunbunma, a senior Bangkok-based forecasting analyst with IHS Automotive, explains: "The fall in 2014 is the first time that sales fell below 1 million units since 2011.The decline was mainly due to the unfavourable political situation and the pull-ahead effect from customers taking advantage of the government's 2012 first-time car buyer programme, increased household debt, and stricter auto loan approval. Thailand's GDP growth is estimated to have expanded to only 0.4–1.0% during full-year 2014. However, IHS is optimistic that total automotive sales will reach 1 million units in 2015 thanks to increased political stability, the government's infrastructure investment policy, the economic recovery, low interest-rate policy, and the low sales base of 2014. Unfortunately, the democratic election, which was originally scheduled for late 2015, has been postponed to early 2016 because the new constitution will not be ready in time. This will hurt consumer confidence and delay the boost to vehicle demand which was expected from the election activities. Therefore, IHS Automotive might downgrade the 2015 Thai sales prediction by 3–5% in the next round of forecast. GDP growth is expected to be around 3–5% in 2015, depending upon the export ability and tourism, improvement of the world economy, government investment policy, and increased business investment before the AEC comes into effect in December 2015."