Thailand's continued policy of undertaking various free trade agreements and its recent entry into the enlarged Asean Free Trade Agreement (Afta) can help companies that have operations in Thailand use the country as the production base for exports, one of the country's largest investors says.
With Thailand becoming a part of the Afta, which became effective on Jan 1, the prospects for further use of Thailand as the production hub for key sectors such as automobiles have started to show greater potential.
Toyota Motor Thailand (TMT), the country's largest automaker, confirmed that Thailand is the most suitable to be the auto hub, especially when compared with other Asean members such as Malaysia or Indonesia, and the company will continue to use Thailand as one of its production bases despite the uncertain political situation.
TMT president Kyoichi Tanada said Thailand was an open market for the auto industry with highly skilled labour and good infrastructure. Therefore, not only is the company undeterred by the protracted political conflicts, it has pledged to commit more investment to Thailand if necessary.
"Anyway, we still have excess capacity as we now run at 550,000 units [out of the total capacity of 800,000]. Despite the instable political situation, I'm quite confident about Thailand's potential of being one of the world's leading auto hubs. After all, annual production above 1 million units isn't normal when compared with other countries across the world," he said.
Currently, Toyota operates three production plants in Thailand. The Ban Pho plant has a capacity of 400,000 units while the Gateway and Samrong plants each can make 200,000 units a year.
According to the Thai Automotive Institute, auto production in Thailand should rebound to the pre-crisis level of 1.4 million units this year. Of the total, 45%, or around 630,000 units, are local sales due to the higher purchasing power among Thai consumers.
Apparently sharing Mr Tanada's views are 10 more automakers who are applying for investment privileges with the Board of Investment (BoI) with a total investment value of 10 billion baht. Most of them are Chinese, which hope to use Thailand as a springboard for their overseas expansion, according to the industry's body.
Commenting on the latest Malaysian Auto National Policy, Mr Tanada said it was not attractive enough for automakers because the government was still protecting the Proton national car at the expense of other automakers, a deterrent for foreign investors. In addition, with a population of 27 million, the local market is too small.
A bigger country like Indonesia, meanwhile, lacks the supporting factors that Thailand has, especially with regard to human resources, he added.
Besides, the bilateral free trade agreements (FTAs) that Thailand has undertaken will help boost the country's exports in the long term. The Thai-India FTA, in particular, will provide enormous benefits because India is strong at making parts for small car. By importing them from the South Asian country, Thailand can promote its eco-car project at even lower costs in the future, he pointed out.
For the project, Mr Tanada warned that Toyota might delay its entry in the segment - it might join the fray in the next three years - because it is not sure about the market potential.
"According to our long experience in Thailand, I don't think that eco-car has high potential because it might not match Thai consumers' behaviour. Anyway, hybrid [cars] will be promoted because we are the only producer in the hybrid technology," he said.
Toyota successfully launched the Camry Hybrid in Thailand last August. Since then, it has sold 1,000 units per month with a long waiting list.
Since the "hamburger crisis" in late 2008, Mr Tanada said the Thai auto market had picked up faster than its regional peers, with sales projected at around 600,000 units this year. Despite a steep decline in the first six months last year, local sales started to recover with annual sales targeted at around 530,000 units by the end of 2009, up from the previous forecast of only 480,000 units.
"The market has started to recover in all segments, even big trucks, one-ton pickups and passenger cars because the prices of agricultural products such as rice, rubber and sugarcane are high while oil prices aren't too high. Based on the current economic factors, I think sales might reach 600,000 units in 2010," he said.
For exports, Mr Tanada said the markets had shown recovery signs as well. The strong baht, however, has narrowed margins so the government should help stabilise the local currency to help the export sector.
At present, Toyota accounts for around half of the 500,000 units shipped from Thailand. Of all Toyota's 98 export destinations, the main markets are the Middle East such as the United Arab Emirates, Oman and Australia.
"Auto exports in 2010, especially in the first half of the year, will definitely grow. So I would like to ask the government to help soften the impact of the strong baht which should not be stronger than 35 baht," he said.
Meanwhile, the Federation of Thai Industries (FTI) estimated that local auto sales should reach 540,000 units in 2009, up from the previous forecast of 500,000. Exports were estimated at 520,000 units, up from 510,000 forecast earlier.
The FTI also expects to see auto production at around 1.2 million units in 2010, split equally between local sales and exports. Asia, Australia and the Middle East are potential markets due to their economic recovery signs while the baht is the most influential factor for auto exports.
Mr Tanada suggested the government keep promoting the one-ton pickup, Thailand's product champion for which the country is already famous. "Being the leader in one-ton pickups is a strong point of Thailand and the government should do more to promote promote the sector. It would be great if the government maintain the existing tax rates."
About the author
Writer: Thosathorn Kruthanawat Position: Reporter
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