Thailand auto industry to benefit hugely from AFTA

The 5-per cent tax on automobiles and parts traded among the six founding Asian countries -Thailand, Malaysia, Singapore, Brunei, the Philippines and Indonesia - was abolished on January 1, in a move towards turning Asean into a single market.

This would help Asean nations become more competitive against other Asian giants - particularly China and India.

Despite the global recession last year, auto sales in China reached 13 million units and in India 2.2 million units, while combined sales in Asean hit 1.8 million units.

Since major markets such as the US, Europe and Japan are saturated and stagnant, due to the financial crisis, any growth in the auto industry would have to take place in the Asian region, analysts say.

Adisak Rohitasune, vice chairman of the Federation of Thai Industries and vice president of Asian Honda Motor, says the liberalisation of the auto and parts trade will not only help Asean manufacturers, but also draw investment into the region.

"This will help increase sourcing of raw materials and parts within the region, and expand the automobile market across the region," he said.

With the tariff barrier in Asean markets lifted, it would not be surprising to see a particular product being manufactured in one country and exported to other countries within the region, he said.

"But it will also depend on the policy and risk management of each company. For Honda, we have assembly plants in several Asean countries and have been utilising the Aico (Asean Industrial Cooperation) scheme and AFTA to dramatically lower the cost for purchasing parts. This has helped strengthen our manufacturing in each country and raised the level of competitiveness," he said.

According to Kasikorn Research Centre (KResearch), Thailand's exports of auto parts could expand by 18-22 per cent this year to Bt150 billion-Bt155 billion after plunging by 23 per cent to Bt127 billion last year due to drop in demand from the global recession.

"OEM (original) auto parts will be the main category benefiting from these changes, given their high export value that is nine times higher than REM (spare) items," it stated in research published earlier this month.

KResearch said that among the six founding Asean countries, Indonesia is expected to be the most promising market for Thai parts exports, followed by Malaysia and the Philippines.

"Auto parts for small Japanese passenger cars and commercial vehicles, such as electronic components, engines and drive-train components that are of high value, have been embraced by these markets for their OEM quality. In addition, relocation of manufacturing bases of foreign automakers into Thailand is likely to boost demand for locally-made REM parts, especially for export-oriented production," KResearch said in its report.

Ninnart Chaithirapinyo, vice chairman of Toyota Motor Thailand, the country's largest producer and exporter of vehicles, said the scrapping of the import duty could help the Asean auto market increase by as much as 10 per cent.

"Thailand would benefit greatly from this, with more income for the government from the increased excise, value-added and corporate taxes," he said.

The arrival of new models produced under the Thai government's eco car project will also serve as a boost for Thai auto exports to Asean.

Nissan will be the first company to launch an eco car in March, while Honda is expected to unveil its model at the end of this year or early next year.

Other companies in the project are Mitsubishi, Tata, Suzuki and Toyota.

According to the eco car guidelines, each manufacturer must produce at least 100,000 eco cars a year by the fifth year of production, with 50,000 units exported.

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