beyondbrics

Thailand’s auto industry is going from strength to strength. In the last two months Ford and its partner Mazda have committed a total of almost $800m to new and expanded plants in Thailand.

The US company announced a new $450m greenfield compact car factory in June, and now AutoAlliance Thailand – a joint venture between Ford and Mazda – have just said they are going to invest a further $350m in expanding their existing plant just south of Bangkok to build “compact pick ups”, a class that attracts a hefty tax break in Thailand.

These new investments are just the latest good news for Thailand’s auto industry.

Last year the country produced just under 1m vehicles, but demand has soared as the global crisis dims in Asia: in the first six months of this year production hit 769,000 vehicles- an increase of almost 100 per cent year on year, although that is partly attributable to the low base effect – and looks on target to beat comfortably the 2008 peak of 1.4m.

Much of that production is going to export, but domestic demand is also surging, indicating that consumer confidence remains strong despite the political upheavals earlier this year.

In a report on the economy in the second quarter, Thailand’s National Economic and Social Development Board identified the sector as a “main engine of growth”:

Passenger cars and motorcycles industries … considerably expanded by 93.9 and 36.3 percent respectively. Such expansions were mainly supported by … strong demand following better confidence of domestic consumers in conjunction with an increase in farm income.

Thailand is southeast Asia’s largest auto manufacturing centre, fuelled by two decades of government assistance: unlike some of its regional competitors, Thailand has courted multinational manufacturers rather than trying to develop a domestic carmakers.

Thai boosters liked to call the country the “Detroit of South East Asia”, but that was before the real Detroit ran into problems.

Yet despite last year’s dip, Thailand’s bet on cars seems to be paying off. It has maintained its first mover advantage, and the Asean (Association of South East Asian Nations) free trade agreement – which came into effect in January and abolished the 5 per cent tariff between the ten member-states – has fed into the growth cycle.

The initial focus was on pick ups, but the country is now chasing the so-called eco-car sector, offering tax holidays and duty-free imports of manufacturing equipment. Nissan, Suzuki and Honda have all either started or are in the process of producing sub-compact cars in Thailand.

And rising global demand for automobiles is having knock-on effects elsewhere in the economy. Rubber prices have rebounded – if you will forgive the term – as demand for tyres (which account for more than three-quarters of rubber consumption) has come back. That’s good for Thailand again: it is the world’s largest rubber exporter.

Related reading:
Thailand’s crisis goes beyond red and yellow, FT
Lunch with the FT: Abhisit Vejjajiva, Thai prime minister