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YEAR-END SPECIAL

Eco-cars set to shake up domestic market

By Vijo Varghese,

Kingsley Wijayasinha

The Nation

Published on December 28, 2009

The Thai automotive industry is preparing for a major shake-up, with eco-cars being highlighted as the new engine to boost the industry amid concern that oil prices could shift Thailand's focus away from its first auto product champion - the 1-tonne pickup.

Initially, when the eco-car project was bought to the discussion table several years ago by the government, some auto companies and analysts believed it would damage the pickup market. So the project was postponed until 2007.

Auto-makers are however beginning to change the way they look at things now, and many are talking about how the eco-car will actually boost the size of the market. The total domestic market this year is estimated at close to 520,000 vehicles, while in past years sales have been as high as 700,000-plus.

"Two players will enter the eco-car segment next year, Nissan and Honda. While Nissan is set to launch in March, Honda is expected to launch in the last quarter of 2010. With a few months of sales, eco-cars will boost the market by about 5 per cent.

"They will take some sales away from the pickup segment and the 'B' passenger-car segment, not to mention smaller brands like Proton, Chery and Naza. A majority of the new customers, however, will be new, meaning first-time car buyers. Expect the total market to reach 600,000 units next year," said an industry insider.

Aside from eco-cars, elevating the market will be the B-car (subcompact) segment, which also promises lower fuel costs.

During its launch month of November, the Mazda2 sold 1,015 units. Sales have been so strong that Mazda Sales Thailand has asked AutoAlliance Thailand - operator of the Ford-Mazda joint-venture plant in Rayong - to increase output to keep pace with soaring bookings.

Mazda Sales Thailand managing director John Ray expects the B-car segment to grow 9-10 per cent this year, and by a similar amount next year. It is expected to account for 115,000 vehicles this year.

B-segment cars represent 22 per cent of automobile sales in the Kingdom. They also make up 40 per cent of all passenger cars sold in the country.

As the focus is on small cars, this could lead to a change in the market ratio between pickups and passenger cars. The eco-car is set to draw low-end pickup buyers, who usually pay about Bt380,000 for a vehicle and can now turn to a new sedan.

"The eco-car will takes sales from pickups and could effect the cheaper B-segment sedans," said Ray. "But it's unlikely to affect higher-up products like the Mazda2, Honda Jazz, Toyota Yaris and the soon-to-come Ford Fiesta. These customers wouldn't buy these vehicles if they were so worried about price. It's a different class altogether."

Market analysts at Mazda and Chevrolet expect the Thai market to even reach a balance of 50:50 between pickups and passenger cars in the next two years, against the 60-per-cent pickup share of previous years.

Besides the pickup market, the eco-car will also affect the second-hand car market. People who currently cannot afford a new vehicle have to turn to the used-car market. Prices for used B-segment cars are likely to drop after the launch of the first eco-car.

The auto market next year is not expected witness the same turbulence as in 2009, when sales fell heavily in the first quarter - bottoming out at a year-on-year contraction of 33.4 per cent.

Thanks to stimulus packages, the market picked up strongly. The overall market in the first 11 months reached 476,786 units, down 14.3 per cent, which is the lowest contraction this year. The decline in the passenger-car market is now down to only 1.7 per cent, while the pickup market is down by 20.7 per cent.

Shedding light on the industry's revival is also the fact that in November, auto production marked the first annualised increase in 13 months, according to the Federation of Thai Industries' Automotive Industry Club.

Although output in the first 11 months of the year was only 887,656 units - a 32.21-per-cent drop from the same period last year - all players are now more positive about the outlook.

While passenger-car production from September to November reached 339,418 vehicles, output during the December to February period is forecast to rise to 345,880 units.

Auto analysts are now looking at a 570,000-unit domestic sales figure for 2010, which would be equivalent to 10-per-cent growth, but some say sales could reach 600,000 units if there were nothing of a major nature stalling economic recovery.

Along with the decline in the domestic market, export markets for Thai automobiles have also been heavily affected. But along with the local market's recovery, exports have also started to pick up.

October exports were the highest since December last year and 20 per cent higher than in September, while export value was down by just 5 per cent compared to the same month last year.

As overall auto output is expected to hit 1.2 million units next year, the eco-car will further boost Thailand's position as the "Detroit of Asia". Under Board of Investment rules, each producer has to meet the 100,000-unit annual output target within five years.

Everyone is watching carefully developments on stimulus measures here and elsewhere, as these will be the key to boosting auto demand in the year to come.

-- The Nation 2009/12/28

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