South-east Asia's auto industry sees gain from Japan's pain

By Peter Janssen and Ahmad Pathoni Mar 30, 2011, 6:45 GMT

Bangkok/Jakarta - South-east Asia's integrated automotive assembly line has suffered a slight hiccup from Japan's earthquake disaster, but the disruption may benefit the region's auto industry in the long term, industry sources said.

The March 11 earthquake, tsunami and nuclear plant catastrophes temporarily knocked out a crucial link in the supply chain of mostly high-tech parts for automobiles manufactured in South-east Asia, chiefly Thailand and Indonesia.

In Bangkok, Toyota Motor Asia Pacific Engineering and Manufacturing Co. Ltd said the quake had forced about 40 of its Japan-based parts suppliers to shut down, prompting the company to halt its overtime shifts in Thailand-based factories.

Thailand still expects to manufacture some 1.8 million vehicles this year, 1 million of them for the export market.

The Indonesian Motor Vehicle Producers' Association has reduced this year's sales target from 850,000 to 800,000 units due to supply problems.

The sector is concerned about disruptions to the supply chain in the short term, but in the longer term there is anticipation that the disaster may prompt Japanese firms to speed up the relocation of production facilities to factories overseas to tap faster-growing markets.

'I doubt that during the crisis they will have time to think about moving investment, but it may be possible in the long term,' said Vallop Tiasiri, president of the Thailand Automotive Institute.

Vallop predicted an increased transfer of production of models that are already selling well in South-east Asia, such as pickup trucks and small eco-cars in Thailand and multi-purpose vehicles in Indonesia.

'In those cases, the car manufacturers will ask the suppliers to supply from here,' Vallop said.

In Jakarta, Indonesian Industry Minister Muhammad Hidayat said he would discuss with Japanese manufacturers of auto parts about the possibility of relocating to Indonesia in the wake of the disaster.

'I will invite them to move the production of automotive components and several other industries and join local partners,' he said.

Indonesia's car sales in 2010 hit 764,710 units, just slightly behind the region's traditional leader Thailand, where 800,357 units were sold last year.

Thailand exported another 895,855 vehicles last year, most of them 1-ton pickup trucks.

Thailand has managed to attract more foreign investment to its automotive sector than any other South-east Asian country over the past two decades because of competitive tax schemes, consistent promotion policies and its relatively large domestic market.

Nearly every Japanese automaker already has factories in Thailand, as do Germany's BMW AG and Daimler AG, makers of Mercedes Benz, and the US companies Ford Motor Co and General Motors Corp.

Ford last year chose Thailand for a new 450-million-dollar flexible production plant that will put out eight different models over the next five years.

But Indonesia's growing domestic market and the country's greater political stability, compared with Thailand, has started to draw more attention from investors.

'Indonesia will probably overtake Thailand in terms of market size in the next couple of years,' Peter TK, head of Ford's South-east Asian operations, said. 'So that clearly weighs largely on our plans in terms of where our opportunities are.'

Like most multinational automobile companies, Ford likes to produce where it sells well.

Already, Thailand last year saw Japanese firms shift their production of its multi-purpose vehicle from Thailand to Indonesia.

The shift may also have had something to do with Thailand's volatile political scene last year, which saw protesters seizing parts of the capital for weeks and deadly street battles that killed 91 people.

'The recent political upheaval in Thailand has made Indonesia more attractive to investors than Thailand,' said Hariyanto Wijaya, auto industry analyst with Mandiri Sekuritas.

'If strong growth continues and infrastructure problems are sorted out, Indonesia can out-compete Thailand,' he said. The multi-purpose vehicle is the best-selling model on the Indonesian market, whereas in Thailand the best-selling models are the 1-ton pickup truck and more recently, the small eco-car, both of which enjoy a reduced excise tax.

'Indonesia will be another production base in South-east Asia because of their domestic market is big enough, but I think Thailand will keep the 1-ton truck and high-quality eco-car production,' Vallop said.

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