INDUSTRY

Keeping the vows

AUTOMOBILES: A major challenge to Thailand's goal to become the 'Detroit of Asia' is not how to attract more investment but rather how to keep it

NAREERAT WIRIYAPONG

Privileges have been granted to automakers under the eco-car programme as part of a bid to deal with high oil prices and boost investment in the sector.

To place the country on track to become the "Detroit of Asia", the Thaksin government has given the local automotive industry a big boost through various investment promotional incentives. As well, the so-called eco-car programme has been put in place to serve as a second export model after pickup trucks at a time when oil prices are sky-high.

But challenges lie ahead now that the country has successfully drawn huge investments from most of the major international automakers. With huge capacity expansions planned to support new investment in the years to come, an inadequate pool of skilled labour in the sector has emerged as a new hurdle.

The sector, one of the five strategic industries identified by the government, is projected to produce one million units of vehicles in 2006. The figure is forecast to surge to 1.8 million units by the end of the decade, turning Thailand into the world's ninth largest automobile manufacturer.

Launched in early 2002, a package from the Board of Investment offers all automotive projects with investment values of 10 billion baht and related parts production a permanent exemption of import tax on machinery regardless of the investment zones. While the government is estimated to lose 250 million baht a year from the scheme, the BoI hopes the package could attract 36 billion baht in new investment to the country, creating 16,000 new jobs, and boosting export income of automobiles and parts worth 80 billion a year.

Japan's Toyota became the first automaker to be granted the privilege under its 42-billion-baht international multi-purpose vehicle (IMV) programme. The scheme includes an investment of more than 21 billion baht in engines and other automotive parts projects. In addition to local parts worth 60 billion baht Toyota expects to procure in 2006, Japan's No. 1 carmaker has invested in a research and development centre to serve its production relocation to Thailand.

Other automakers that have decided to either relocate their production bases to Thailand or expand their Thai facilities include Ford and Mazda, through its joint venture AutoAlliance (Thailand) and Mitsubishi.

AutoAlliance announced in October 2003 a $540-million project to expand its sport utility vehicle production in the country. Mitsubishi also reported a $250-million plan to increase its one-tonne pickup truck capacity in the country.

Nissan Motor also has big plans for Thailand. As the Thai government allows 100% foreign ownership in carmakers, Nissan took over its joint ventures with the Siam Motors group, marking a new trend in which foreign parent firms take over their local distributors to consolidate their presence in the country. Japan's No. 2 automaker later announced a plan to use Thailand as its global export hub. Meanwhile, pickup truck giant Isuzu Motors is set to revive its new manufacturing project, aiming to produce 100,000 more pickup trucks a year or 140,000 units in all at its existing factory.

In a bid to alleviate the impact of skyrocketing oil prices on the economy, the government recently introduced the eco-car programme under which manufacturers would be given tax incentives. The scheme has attracted Honda's new investment of six billion baht to Thailand.

But the exponential growth in the automotive sector in recent years has given rise to a new challenge. The Industry Ministry forecast that in order to sustain the growth, 15% or 30,000 more employees, ranging from engineers and technicians to skilled workers, were needed each year on top of the existing 200,000-strong workforce employed in the industry. By 2006, the industry is expected to require a total of 310,000 employees.

However, further human resource development by the government has been limited by budget constraints. As a result, the government called for co-operation from the automakers, which normally have their own training centres, as well as educational and private institutions such as the Thai Automotive Institute, to help develop manpower to serve the sector.

Meanwhile, stepping up research and development is vital to strengthening the Thai automotive sector's competitiveness. Chinese manufacturers have emerged as the most formidable rival, given their low raw material, labour and production costs that enable them to achieve economies of scale. Besides, the Chinese government is also generous with its spending on R&D.

Paiboon Poocharoen, the new chairman of the Automotive Industry Club and director of Isuzu's Thai unit, said the automotive market had expanded steadily on the back of the economic recovery and low interest rates. Given the improved standard of living partly driven by the government's consumption-boosting policies, more people in the provinces can now afford to buy motorcycles, cars and pickup trucks.

Sales of pickup trucks, of which 70% come from provincial markets, will continue to grow healthily over the next five years as long as interest rates remain low, said Mr Paiboon.

In addition, the government's aggressive move to seal free-trade area (FTA) agreements with several countries should prove to be a boon for Thailand's ambition to become a regional automotive hub.

Among them, the FTA pact with Australia, which will take effect early next year, is expected to generate the most benefits, allowing Thai-made cars, auto part, and accessories to enter the Australian market more easily with lower taxes. As well, the upcoming Thailand-US FTA agreement is expected to benefit exports of pickup trucks to the US, the largest pickup market in the world ahead of Thailand.