Outlook Of Major Car Manufacturers On The Impact Of Afta

Outlook Of Major Car Manufacturers On The Impact Of Afta

Southeast Asian economies are losing attractiveness compared with China and the region's automotive industries are no exception, despite booming export volumes. Carmakers striving to make Thailand the "Detroit of the East" have reported good news lately. Toyota and Nissan have new capital-injection plans, while General Motors and Isuzu are set to boost exports. The world's largest parts supplier, Delphi, will build a factory in this year. However, when top executives and experts in automotive industries met in Bangkok to discuss the prospects for the region's auto industry after Chinese trade barriers come down, the outlook was not so positive. According to Frank Messer, chief executive of DaimlerChrysler Southeast Asia, AFTA should be considered as a must for Asean or else investors will go elsewhere, especially China, which is the fastest growing market. He also said that already, the Association of Southeast Asian Nations' (Asean) share of the world's total foreign direct investment has declined to 20 per cent from 60 per cent 10 years ago. Asean is thus losing out to other developing economies.

The speakers agreed that AFTA was essential to the Asean auto industry, but Ashvin Chotai, Standard & Poor's (S&P) head of Asian automotive research, said that AFTA alone would not be enough for Asean to thrive in the era of globalisation. According to him AFTA is essential but it is not sufficient. Integration into the rest of the world has just as much importance. As China nears membership in the World Trade Organisation, many participants at the regional conference, held by Automotive News International, pointed to the country as a threat to Asean's auto industry. Stefan Jacoby, the Volkswagen Group's vice president for the Asia-Pacific region, confirmed that Volkswagen was likely to export more automobiles from China. In addition, he pointed out that he was very surprised at the quality of the Audi A6 and the Passat models, which were being produced in China. He said that the quality was equal to other places worldwide where they were producing the same products. Jacoby said that he did not believe Asean would be able to form a trade bloc as successful as the European Union and the North American Free Trade Area.

Michael J Dunne, president of Automotive Resources Asia, said he expected Malaysia to find "a big brother" to be a partner in its Proton national car project as a preparation for AFTA. Because of concerns by the Malaysian Prime Minister Tun Dr. Mahathir Mohamad, the free-trade agreement had been postponed to 2005 from 2003. Dunne said that time was running out for Dr Mahathir. Malaysia wants a big brother to come in. But it would not be a takeover because they wanted to maintain the Proton brand, which is something of a natural pride and heritage to Malaysia.

Koji Hasegawa, managing director of Toyota Motor Corporation, said Toyota's first priority was to increase the localisation of parts to improve the competitiveness of the region. Toyota's Thai unit recently announced a goal of using 100 per cent local parts by 2003. After years of losses, Hasegawa said that Toyota Motor Thailand was expected to break even this year.

S&P's Chotai said that the ideal scenario for Asean's auto industry would be for governments to harmonise excise taxes and industrial policies. He said that the Asean market was not only small, but was also fragmented as a result of varying excise taxes. For example, pickup trucks enjoy the lowest tax in Thailand, locally made passenger cars get the break in Malaysia, and the tax on sport-utility vehicles is the lowest in Indonesia and the Philippines. S&P predicts that Asean's share of the global auto market would increase to 4.4 per cent in 2010, compared to 1.3 per cent in 1999. However, this remains smaller than China's forecasted share of 6.6 per cent, and tiny compared to worldwide figures.