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Thursday, Jan. 25, 2001
Automakers zero in on Thailand
Japan giants ready to face challenge from U.S., Europe
BANGKOK -- As Thailand gradually recovers from the financial crisis of 1997, Japanese automakers will likely see whether their effort to cut costs over the past few years has given them the strength to tackle intensifying competition in the market they have dominated for so long.
Prior to the fall of the baht in July 1997, which triggered the Asian financial crisis, Thailand was enjoying a steady increase in gross domestic product. More than 559,000 cars were produced in the peak year of 1996, even though they are luxury items that carry a high commodity tax.
In 1998, however, auto production plummeted nearly 70 percent to some 158,000 units. Japanese automakers, which control around 90 percent of the Thai market, had to devise measures that would maintain their profitability while simultaneously allowing cheaper car production.
The production line at the Honda Automobile Thailand Co. plant in Ayutthaya was restructured by trimming process steps. The firm decided against additional automation for the line, which has an annual production capacity of 70,000 units, and instead made greater use of cheap local labor costing around one-tenth of that in Japan.
"Taking advantage of low personnel costs is an important part of improving cost competitiveness," said Seiji Kuraishi, general manager of the automobile sales and marketing division at Asian Honda Motor Co., the headquarters for Honda's operations in the Association of Southeast Asian Nations region.
He added that this strategy, which has also been adopted at Honda's production lines in Indonesia, Malaysia and the Philippines, also serves to provide local employment.
The automaker has also brought local engineers and line managers to Japan for training with the aim of lessening the involvement of Japanese nationals in the Thai operation.
Honda is not alone in using more local workers. Other automakers, including Toyota Motor Corp., the top manufacturer in Southeast Asia, are also hiring more locals for line management and engineering work.
A restructured production line, allied to its use of Japan-trained employees helped Honda introduce its new Civic to the Thai market in October -- just one month after the same model hit the Japanese market, company officials said.
"Usually, introducing a new model in the ASEAN region took over three months (after its debut in Japan)," Kuraishi said. The swift entry of new models is seen as being a key factor in meeting customer demand, which is likely to grow as Thais gain greater confidence regarding their economy.
Another major factor that has helped to improve Japanese automakers' cost competitiveness is the use of more auto parts manufactured locally or within the ASEAN region, industry officials said.
Automakers are taking advantage of international trade agreements such as the Asian Industrial Cooperation, which is an accord regarding preferential tariffs on parts, materials and finished products procured from ASEAN members.
Under AICO, auto parts from member states are levied a tariff of 5 percent or less. In contrast, an import tax of 33 percent would be imposed on similar parts imported from Japan.
"If you want to reduce the risk (of losing competitiveness), it becomes a matter of how close you can get to 100 percent local procurement of parts," said Masaki Nakatsugawa, executive vice president of Toyota Motor Thailand Co.
In an effort to cope with a decline in domestic sales and to take advantage of the weak baht, Japan's automakers also began exporting finished vehicles to other markets -- including Australia, New Zealand, the Middle East and Africa -- during the economic downturn that followed the financial crisis.
This in turn has helped transform their Thai operations into their point of export from the ASEAN region, a position that is likely to be further enhanced in the future, according to some observers.
The total number of autos produced in Thailand is estimated to have reached about 400,000 units last year, with automakers expecting this figure to rise in 2001.
Despite this increase, however, Japanese manufacturers say they are aware that competition is likely to heat up as American and European rivals also focus their attentions on the recovering ASEAN region.
"Western automakers are expanding their presence in the market with the cooperation of their Japanese alliance partners," observed Seiji Sugiura, senior analyst at Nomura Securities Co.
Sugiura cited Ford Motor Co. of the U.S. as an example of this process.
He said that Ford has been increasing its share in the Thai market via its joint venture company with Mazda Motor Corp., which began producing vehicles in late 1995.
Asian Honda Motor President Satoshi Toshida said, however, that he believes Japanese automakers still hold an advantage over their European and American competitors in terms of brand image, after-service quality and the availability of repair parts. Despite the prospect of tough competition ahead, Japanese automakers said they are determined to dig in their heels, given the considerable potential of the ASEAN market.
Although some 70 percent of vehicle sales in Thailand are those of pickup trucks, Honda Motor Co., which began manufacturing cars locally in 1992, is focusing its production on cars. The firm believes that when the future brings maturity to the market and greater disposable income to the people, car sales will take off.
Honda said it hopes to secure at least 10 percent of the ASEAN car market by 2003, by which it predicts the market scale will be about 1.46 million vehicles. It estimated its share at a little less than 7 percent in 2000.
Yasuhiro Yomoda, director of market division at Toyota Motor Thailand Co., said his firm plans to expend more energy on both production and sales in Southeast Asia -- regardless of the future threat posed by foreign competitors.
"Toyota has traditionally considered Japan, the United States and Europe as our main markets, but because of the large potential the (ASEAN) region has, we are now directing more energy into our (Thai) operations," he said.