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Thailand’s Troubled Car Market Makes Investment Elsewhere in the ASEAN Region More Attractive

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I read with interest an article in the 5 February edition of the Financial Times, "Japanese Car Sales Plunge in Thailand", which outlines that Mazda and Mitsubishi are the latest carmakers to report declining sales in Thailand in their third-quarter results. With ongoing political unrest and a poor prognosis for demand, autos investment will surely come under increased scrutiny and make some of the country's neighbours appear more attractive in the process.

Light vehicle sales in Thailand amounted to 1.27 million units in 2013, confirming my suspicions back in July that Toyota’s outlook of 1.3 million units was probably optimistic. To recap, calculations based on household incomes suggest that demand in Thailand was inflated by more than 500,000 units in 2012, even factoring in any pent-up demand that accumulated in 2011 as a result of the floods. Although many of these new vehicle purchases may not have been made at all without the tax rebate, many others would have been simply brought forward and so the payback in 2013 was inevitable.

There is indeed “an increasingly affluent population” in Thailand as the FT article commented, but there are still only so many consumers who can support new car sales and, in conjunction with the current political unrest, even Honda's expectation of a drop in sales of up to 25% this year could prove to be ambitious. In fact, without a new round of incentives and/or a permanent change to the vehicle duty regime, I cannot envisage the market returning to the 2012 level again before 2020.

Moroever, I can’t help but think that this poor prognosis for car sales and the current political instability will have a damaging impact on autos investment in Thailand. Japanese carmakers especially must be looking carefully at Thailand now and this can only benefit other countries in the ASEAN region. Incidentally, barring any stimulus packages in Thailand or natural or economic disasters, Indonesia will be ASEAN’s largest vehicle market from now on. However, it remains to be seen whether, in order to attract autos investment, any ASEAN countries will actively capitalise on Thailand's woes.

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