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Automotive marketin Thailand

Industry overview

Table of contents

1 Opening comments

3 Thailand’s economy

5 Thailand’s automotive industry in a global context

7 Market overview

12 Passenger car market

16 Commercial vehicle market

23 Bus market

25 Motorcycle market

27 Three-wheeler market

28 Automotive component market

29 Logistics in the automotive industry

30 Industrial estates in Thailand

31 Trade considerations for domestic and export markets

32 Free Zone: a major opportunity for the automotive industry

36 Car buyers and car � nancing

37 Development of dealer networks

38 Ernst & Young’s involvement in the automotive industry

39 Contacts

1 Automotive market in Thailand: industry overview

Thailand has established itself as a global automotive manufacturing hub in Southeast Asia and continues to strive to be a global leader in the industry. Since facing economic crisis in 1997, Thailand has seen a dramatic increase in passenger car and commercial vehicle exports, with automotive exports accounting for more than one-third of total automotive production. The country has become a main production base for many vehicle manufacturers and their suppliers, such as Ford, Isuzu, Mazda, Mitsubishi and Toyota, and serves both the domestic and export markets.

Today, the automotive industry is the third largest industry in Thailand, employing an estimated 300,000 workers in 2008. With its good track record, unfettered access to the relatively buoyant economies of South East Asia, and increased government infrastructure spending, Thailand is poised to become a major hub of automotive production in Asia.

This overview takes a closer look into Thailand’s growing automotive industry and provides a synopsis of the country’s latest market developments and automotive statistics as of late 2008, which might be useful when considering entry or expansion into the market. Our team of professionals would be pleased to share with you our detailed experience in the automotive industry in Thailand, and how we can help enhance your business in this market.

Mike Hanley

Global Automotive Industry Leader

Opening comments

Automotive market in Thailand: industry overview 2

Geographical position, consistent government support and, until recently, a generally buoyant economy have all helped Thailand to position itself as the “Detroit of Asia.” Simpler regulation and stronger protection of property and investor rights have also improved the ease of doing business in Thailand — placing it 13th in rank out of 181 economies surveyed in the World Bank’s Doing Business 2009 report.

In addition to a degree of political instability in Thailand, 2008 saw an increase in oil prices, in� ation and debt de� ation — all causing a decrease in overall global consumer con� dence. The resulting global economic slowdown has had a strong negative effect on the global automotive industry and Thailand, while not as badly affected as some countries, has not been immune. While signi� cant investment continues in both manufacturing and assembly from new and existing players, early 2009 has seen manufacturers cutting production in response to weakening global demand. The immediate outlook for the automotive industry is clearly uncertain, and it is too early to tell how this will play out in Thailand.

Nevertheless, many global industry leaders including (but not limited to) Ford, General Motors and Toyota have recently begun implementing far-reaching production expansion strategies in Thailand. At the same time, new entrants to the Thailand market, like Volkswagen, Tata Motors and Chery are establishing their manufacturing and assembly operations. In a display of continued commitment, the Thai government continues to aggressively explore new and innovative ways to attract a continued � ow of investment. The most recent example is the special incentives allocated to manufacturers who produce environmentally friendly “eco-cars.”

Regarding the domestic automotive market in Thailand, while sales forecasts for 2008-2009 are unlikely now to be met, there is clearly potential for continued growth and demand. Car ownership levels remain below those of other developing countries and demand continues to be strong. Moreover, international trade agreements mean that vehicles assembled or manufactured in Thailand can be exported throughout the Association of South East Asian Nations (ASEAN) and to other key markets in the Asia-Paci� c region without signi� cant tax barriers. Without any signi� cant local brand competition in ASEAN, except for Proton in Malaysia, foreign-based manufacturers have every reason to remain optimistic about the future.

If you’re thinking about entry or expansion into the Thailand market, our professionals with deep experience in the automotive sector can provide services to help you meet your goals.

Welcome to Thailand!

Narong Puntawong

Automotive Leader, Thailand

Automotive market in Thailand: industry overview


Thailand’s economy

Until the impact of the global economic crisis hit at the end of 2008, The Thai economy had grown at an average 4-5% annually since its rebound from the Asian � nancial crisis in 1997. Thailand is a major exporter of manufactured goods, with exports amounting to US$109.2 billion in 2006, and an expected growth of over 15% year-on-year (y-o-y), despite unfavorable exchange rates. In� ation has generally been modest, with an average of 4.5% per year, but the increase in prices of oil and other commodities necessary for industrial production and operation did result in a higher in� ation rate for 2008.

Despite political instability, including a bloodless coup in 2006 and adverse global developments, Thailand’s economy has maintained steady growth, although a signi� cant slowdown is likely in 2009. Weakening domestic consumer spending has generally been compensated by stronger exports. Although foreign investors have been made weary by recent events, sound � scal policies and some targeted measures have kept foreign direct investment (FDI) � owing in, albeit, in reduced amounts recently.

2005 2006 2007 2008 2009f 2010f 2011f 2012f

Real GDP (% change) 4.5 5.1 4.8 4.1 1.7 3.3 5.1 4.9

Nominal GDP (US$ billion) 176.4 206.7 245.8 278.4 278.5 293.8 317 335.3

Real and nominal GDP growth

f=forecastSources: Global Insight, Bank of Thailand, Ernst & Young

3


2005 2006 2007 2008

Population (million)

62.42 62.83 63.04 63.39

Nominal GDP (US$ billion)

176.4 206.7 245.8 278.3

Real GDP (% change)

4.5 5.1 4.8 4.1

Nominal GDP per capita (US$ billion)

2,800 3,258 3,848 4,327

In� ation (%) 4.5 4.7 2.3 1.8

Balance of payments (US$ billion)

22.7 12.7 17.1 9.9

baht : US$ 40.3 37.93 34.56 33.36

baht : EUR 50.02 47.55 47.26 48.93

Industrial production index, (% y-o-y)

9.1 7.4 8.4 7.9

Minimum daily wage (US$)

4.34 4.85 5.53 5.95

Macroeconomic indicators

Sources: Bank of Thailand, National Statistics Of� ce, National Economic and Social Development Board, Global Insight

Key to acronymsAFTA ASEAN Free Trade AreaAIC ASEAN Industrial ComplementationAICO ASEAN Industrial CooperationASEAN Association of South East Asian NationsBMI Business Monitor InternationalBOI Board of Investment ThailandCAAM China Association of Automobile ManufacturersCBU Completely Built UpCEPT Common Effective Preferential TariffCIF Cost, Insurance & FreightCKD Complete Knocked DownFCAI Federal Chamber of Automotive Industries (Australia) FDI Foreign Direct InvestmentFTA Free Trade AgreementFTI The Federation of Thailand IndustriesFZ Free ZoneGDP Gross Domestic ProductHCV Heavy Commercial VehicleJAMA Japan Automobile Manufacturers AssociationJTEPA Japan - Thailand Economic Partnership AgreementLCV Light Commercial VehicleLPG Liqui� ed Petroleum GasMAA Malaysian Automotive AssociationMNC Multinational CorporationNGV Natural Gas for VehiclesOEM Original Equipment ManufacturerOICA The International Organization of Motor Vehicle ManufacturersSIAM Society of Indian Automobile ManufacturersTAI Thailand Automotive InstituteTAIA Thai Automotive Industry AssociationTHB Thai bahtVAT Value-added TaxWTO World Trade Organization

Automotive market in Thailand: industry overview5

Thailand’s automotive industry in a global context

The Thai automotive industry was originally developed with the objective of substituting imports, and large automotive manufacturers initially established themselves in Thailand primarily to boost their domestic sales, with exports as a secondary target. In 1997, however, things changed abruptly in the wake of Thailand’s economic crisis; there was a sudden and disastrous drop in domestic demand for cars, coupled with a dramatic devaluation of the baht. Automotive manufacturers found a solution to the problem of excess production capacity in export, and Thailand’s automotive exports jumped from 14,020 units in 1996 to 332,057 units in 2004, or almost 23.7 times in a period of only nine years. The industry is Thailand’s third-largest sector, generating annual revenues of 930 million baht (US$28.34 million or 12% of the country’s GDP), and employing approximately 300,000 people.

Aspiring to become the “Detroit of Asia,” Thailand offers its investors generous tax breaks, a highly skilled, low-wage workforce, and an extensive network of plants and suppliers. It’s ambitious plan to become the preferred industry hub of the region has also prompted Thailand to invest heavily in infrastructure projects, including a new international airport, the Bangkok subway and an upgraded expressway and road network, to facilitate supply chains and logistics for its investors.

In terms of government policy towards the automotive industry, Thailand’s open-door approach to foreign manufacturers has certainly helped the cluster to grow. Unlike nations such as Indonesia and Malaysia that in the past set up national car programs to develop their local industries and reduce reliance on foreigners, the Thai government has consistently pursued a strategy aimed at attracting global vehicle and automotive parts manufacturers to the country.

Policy environment Brands Status of cluster

Thailand Initially interventionist• Switched from import substitution • to facilitating exports

Blue-chip MNCs, e.g., Toyota, • Honda, GM, Ford

Highly competitive with world • markets, especially pickup trucks

Indonesia Intense government intervention• Rent-seeking activity• High import protection•

Initiated national car brand, • “Timor” (Teknologi Industri Mobil Rakyat)

Now known in Indonesia as “bayi • yang sudan tua” (an old baby)Never reached economies of scale•

Malaysia Government directly involved in • production; attempting to reduce reliance on foreigners

Tried to create national brand • Proton

Ten times fewer exports than • Thailand (in value)

How Thailand compares to its neighbors

Source: TAI


The domestic market is helped by improving levels of personal income, attractive automotive loan schemes, decent roads in most of the country and nationwide dealer networks. Although in global terms the market is relatively small, as a member of ASEAN, Thailand bene� ts from the 0-5% tariff levied throughout AFTA by 2010, boosting the potential market available to local automotive producers to 500 million consumers.

Population (million)

Number of passenger cars

(million)

Car density (cars per 1,000 people)

Germany 82.2 46.81 565

UK 61.0 31.34 521

US 302.8 136.01 450

Czech Republic 10.2 4.31 424

Poland 38.1 14.21 369

South Korea 48.9 9.65 246

Russia 142.3 26.79 188

Brazil 189.4 19.80 107

Thailand 65.3 6.10 93

Turkey 75.1 6.24 85

China 1,322.1 21.43 16

India 1,135.6 12.06 9Sources: Global Insight, Rosstat

Thailand has the potential to allow automakers to consolidate their production capacities in the country and utilize it as their base for exporting to other countries in the Asia Paci� c region. Over the last two years Thailand signed FTAs with key automotive markets in the Asia-Paci� c region, such as ASEAN, Australia, New Zealand, China, India and Japan (JTEPA). Currently, a trade agreement with the United States is on the anvil. Tata Motors is the latest automaker to set up a pickup truck manufacturing plant in Thailand, from where it could potentially access the ASEAN and the Chinese markets through AFTA and the Thai-Chinese FTA. Chinese carmaker Chery, Volkswagen and Fiat also appear poised to take the plunge.

In 1995, Ford and Mazda jointly identi� ed Thailand as a strategic part of their investment and expansion plans in the Asia-Paci� c region and laid the groundwork for AutoAlliance (Thailand) to establish Thailand as a global manufacturing hub to serve growing demands in both the domestic and export markets.


Market overview

According to TAI, there were 15 production facilities in the country in 2005 (see table below), yielding a total output of motor vehicles of 1,301,149 units in 2007, up nearly 9% from year-earlier levels. This made Thailand the � fth-largest auto producer in the Asia-Paci� c region, behind Japan, China, South Korea and India, and the world’s second-largest producer of one-ton pickup trucks.

Assembly plants Brands Total capacity (units)

Toyota Motor Thailand Toyota 450,000*

Auto Alliance (Thailand) Ford, Mazda 300,000

MMC Sittiphol Mitsubishi 200,000

Isuzu Motors (Thailand) Isuzu 180,000

Siam Motor & Nissan Nissan 130,000

Honda Automobile (Thailand) Honda 120,000

General Motors Assembly Center Chevrolet 115,000

Hino Motors (Thailand) Hino, Isuzu 28,800

Thonburi Automotive Assembly Plant DaimlerChrysler 20,000

Y. M. C. Assembly BMW, Peugot, VW 12,000

The Rung Union Car Isuzu, Tata 12,800

Thai-Swedish Assembly Volvo, Land Rover 10,000

BMW Thailand BMW 10,000

Bangchan General Assembly Jeep, Chrysler 20,000

Source: TAI

*550,000 units in 2007


Year 2005 2006 2007 2008 2009fProduction (CBUs) 1,125,316 1,193,885 1,301,149 1,391,728 1,080,000

Domestic Sales (CBUs) 703,261 682,163 631,251 614,078 488,000

Export sales (CBUs) 440,705 538,966 690,100 775,652 592,000

Thailand automotive sector — historical data and forecasts

f = forecasted by FTI on 22 January 2009

Sources: FTI, TAI

Although oil prices in 2007 dampened consumer con� dence and increased the cost of driving, a steady increase in sales of new vehicles in both export and domestic markets was anticipated, from early statistics for 2008. However, with the slowdown in global demand that came with the threat and/or onset of economic recession in major export markets, such as Australia and some European countries, production is now expected to fall by 20-35% in 2009.


A master plan for the industry outlined by the Thai Government in 2005 set an export target of more than one million vehicles per annum by the end of the decade, together with auto parts sales worth more than 400 billion baht ($US 12.19). Despite the signi� cant strengthening of the Thai baht, exports of CBUs in 2007 grew by 28% from 2006, and with domestic sales stalling due to political and economic concerns, this saw exports pass domestic sales for the � rst time.

Thailand vehicle domestic and export sales growth

Export sales Domestic sales

2003 2005 2007

440,705

703,261

690,100

631,251

235,022

533,176

Uni

ts

Year

Source: FTI

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0



Automotive export breakdown by region (%)

2004 2005 2006 2007

26.4

17.3

26.9

12.4

14.1

26.1

15.2

8.7

27.6

23.4

18.5

10.1

28.6

20.3 17.7

2.9 2.1 1.83.2

32.3

18.2

10.3

12.5

26.3America

Asia

Australia and New Zealand

Europe

Middle East and Latin America

Others

Source: Ministry of Commerce

10

2004 2005e 2006e 2007e 2008f

Australia 128,210 147,045 166,579 189,380 215,846

China 66,240 176,239 340,000 449,948 584,933

India 143,475 186,499 235,203 280,777 341,845

Indonesia 48,114 63,345 30,974 52,730 73,822

Japan 4,979,000 505,3000 5,967,000 6,379,000 6,889,000

Malaysia 21,922 28,176 37,987 52,351 69,690

Thailand 332,057 440,640 538,966 619,811 734,846

e/f= BMI estimate/forecast. Sources: Business Monitor International (BMI), China Association of Automobile Manufacturers (CAAM), Society of Indian Automobile Manufacturers (SIAM), Federal Chamber of Automotive Industries (Australia) (FCAI), Japan Automotive Manufacturers Association (JAMA), Malaysian Automotive Association (MAA), Gaikindo, TAI

Asian automotive exports

Export production will account for an increasingly larger share of production, with Asian countries, including Indonesia, the Philippines and Singapore, being among the largest clients for Thai-made vehicles. Since the beginning of 2008, new overseas markets, such as countries in Latin and Central America and the Middle East, have come into play. Given the resilient growth in Asian economies for 2007-2008 and � rm demand from emerging markets, there is considerable room for this sector to grow when global economic recovery begins.

The domestic market should not be ignored. Early 2008 showed domestic sales starting to recover after a fairly despondent 2007. As more rural populations gain the buying power and need for transportation, vehicle sales distribution has begun to disperse nationwide. This seems to suggest continued potential for growth. In 2007, nearly 50% of vehicle sales were in the Bangkok area, but the impact of the economic crisis slowed sales signi� cantly later in the year, and this potential may now take a little time to realize.



2005 2006 2007

40,602

449,796

191,763

45,564

469,657

188,211

55,268

405,865

170,118

Unit sales by vehicle type

Top vehicle sellers (2007)

Brands Units % Market share

Toyota 282,088 44.7

Isuzu 151,033 23.9

Honda 58,525 9.3

Nissan 38,297 6.1

Mitsubishi 27,914 4.4

Chevrolet 22,796 3.6

Mazda 15,012 2.4

Ford 15,126 2.4

Hino 8,064 1.3

Benz 4,234 0.7

Others 8,162 1.2

Total 631,251 100 Source: FTI

Toyota 44.7%

Isuzu 23.9%

Honda 9.3%

Nissan 6.1%

Mitsubishi 4.4%

Chevrolet 3.6%

Mazda 2.4%

Ford 2.4%

Hino 1.3%

Benz 0.7%

Others 1.2%

Source: FTI

*Others include vans/microbuses, less than one-ton pickups, 1.5-ton pickups, two through four-ton; trucks, over four-ton trucks and buses, and four-wheel drive vehicles.

Others

One-ton pickups

Passenger cars

800,000 -

700,000 -

600,000 -

500,000 -

400,000 -

300,000 -

200,000 -

100,000 -

0 -


Passenger car market

Domestic production and sales of passenger cars have more than doubled since 1999 when the country started to recover from the Asian � nancial crisis. However, in understanding the Thai passenger car market, it is important to realize that it comprises a relatively small portion of the total market in Thailand because the use of passenger cars is mostly restricted to urban and suburban areas in major cities, such as Bangkok. In the remaining areas of the country (and even in many urban areas), the one-ton pickup is the personal vehicle of choice.

Year Total unitsCommercial vehicles

1201-1500 cc* 1501-1800 cc* 1801-2000 cc* 2001-2400 cc* 2401-3000 cc* > 3001 cc*

2002 564,392 36,407 77,203 25,661 27,700 2,348 2

2003 750,512 127,505 77,082 11,711 28,214 7,090 82

2004 960,371 154,308 86,005 22,745 30,426 5,916 39

2005 1,125,316 135,013 93,248 18,738 25,531 5,037 36

2006 1,193,885 157,600 89,428 22,799 25,030 3,416 546

2007 1,301,149 139,059 85,031 40,754 60,765 2,111 1,503

Market overview

*Cubic centimeters (cc) is the standard measurement unit used for engine capacity under Thai law (1,000 cc = 1 liter)

Domestic car sales and domestic car sales growth

Uni

ts (t

hous

ands

)

Grow

th (%)

800 -

600 -

400 -

200 -

0 -1994 20021998 20061996 200420001995 20031999 20071997 20052001

- 60%

- 40%

- 20%

- 0

- (20%)

- (40%)

- (60%)

- (80%)

Total domestic car sales (left-hand axis) Domestic car sales growth (right-hand axis)

Source: Thanachart Securities


New passenger car registration by number of seats (2005-2007)

350,000 -

300,000 -

250,000 -

200,000 -

150,000 -

100,000 -

50,000 -

0 -2005 2006 2007

Uni

ts

12,688 13,442 18,074

306,800 302,247 296,292

Passenger cars of less than seven seatsPassenger cars of more than seven seats

Source: Thailand Department of Land Transport


Number of seats Units % Increase/decrease

2005 2006 2007 2005/2006 2006/2007

Less than seven 306,800 302,247 296,292 (1.43) (1.97)

More than seven 12,688 13,442 18,074 5.94 34.46

Domestic production of passenger cars


14

Most automotive companies with any signi� cant presence in the domestic market have production facilities in Thailand. With more companies moving in, consumers have a great deal of choice, although Japanese automakers, especially Toyota and Honda, remain dominant.

The country is also considered a lucrative market for some luxury-brand imported passenger cars, with Mercedes-Benz deciding to locate its South East Asian research and development and service center in Thailand with an investment of 660 million baht. Recent economy models from Malaysia and China however have received a promising welcome from the Thai market too.

January-December 2007

Source: Bangkok Post

Units Market share % Change

Toyota 92,530 54.4 (0.04)

Honda 50,093 29.5 (22.9)

Chevrolet 7,604 4.5 (2.2)

Nissan 4,447 2.6 (33.7)

Benz 3,972 2.3 14.4)

Mitsubishi 3,180 1.9 (9.1)

Mazda 3,237 1.9 (22.5)

BMW 1,648 0.9 (41.7)

Ford 1,624 0.9 (58.5)

Volvo 470 0.3 8.0

January-May 2008

Units Market share % Change

Toyota 44,068 49.1 26.8

Honda 30,178 33.6 39.7

Chevrolet 4,385 4.9 37.3

Nissan 3,100 3.5 85.9

Mitsubishi 1,684 1.9 32.5

Benz 1,586 1.8 18.1

Mazda 1,573 1.8 17.8

Proton 1,154 1.3 —

BMW 740 0.8 101.1

Ford 451 0.5 (62.8)

Passenger car sales by make

Vehicle registration � gures show a substantial increase in sales of larger utility vehicles with more than seven seats.

Many of these are for commercial purposes, but there is also a trend toward extended family vehicles among wealthy urbanites.


Lower taxes and compulsory insurance premiums (third-party protection) are a plus for small passenger cars, with excise tax on vehicles with an engine capacity of two liters or less being 30%, or considerably lower than for larger vehicles.

With higher fuel prices, the Thai government is encouraging the use of passenger cars with fuel-ef� cient engines, hybrid, electric-powered and fuel cell-powered vehicles, as well as compressed natural gas vehicles, through offering lower excise tax and import tax rates.

The number of new passenger car registrations using alternative fuel-enabled engines such as LPG, NGV, electric and hybrid has rapidly increased during the past two years as a result of conversions becoming popular with consumers seeking relief from � uctuating oil prices. This trend can be expected to continue. In response, automakers have some plans to shift more production focus to this emerging market.

Type of passenger car

Total Gasoline Diesel LPG LPG and gasoline

LPG and

diesel

NGV NGV and gasoline

NGV and

diesel

Electric Hybrid Others

Less than seven seats — 2006

3,312,941 2,676,131 576,969 1,040 36,233 134 84 5,370 57 13 168 16,742

Less than seven seats — 2007

3,560,222 2,742,108 701,573 1,153 87,252 213 120 12,490 92 7 738 14,476

More than seven seats — 2006

395,318 45,735 332,043 147 734 31 7 145 26 1 - 16,449

More than seven seats — 2007

381,630 42,241 323,844 160 1,759 50 10 2,046 84 1 1 11,434

New passenger car registrations by fuel type (2006 vs. 2007)



Commercial vehicle market

Thailand prides itself on being the world’s second largest production base for one-ton pickup trucks after the United States, and such locally assembled vehicles account for a massive 70% of the total vehicle sector. The commercial vehicle market is divided into two segments: HCVs, which include trucks and buses over four tons; and LCVs, which include trucks up to � ve tons and four-wheel-drive vehicles. However, � gures for the sector overall can be misleading since one-ton pickup sales greatly overshadow those of all other commercial vehicles together.

Year Total units % Change

2002 408,619 —

2003 476,116 14%

2004 612,150 29%

2005 829,574 36%

2006 880,457 5.8%

2007 914,900 3.9%

LCV production LCV and HCV production over time

LCV

Uni

ts

HCV

Units

1,000,000 -

900,000 -

800,000 -

700,000 -

600,000 -

500,000 -

400,000 -

300,000 -

200,000 -

100,000 -

0 -2002 2003

Year

2004 2005 2006 2007

Source: OICA

476,116

612,150

829,574 880,457914,900 - 18,000

- 16,000

- 14,000

- 12,000

- 10,000

- 8,000

- 6,000

- 4,000

- 2,000

- 0

6,623

14,165

16,17915,164 14,352 14,630

408,619

Year Total units % Change

2002 6,623 -

2003 14,165 2.14%

2004 16,179 14%

2005 15,164 -6.3%

2006 14,352 -5.4%

2007 14,630 1.9%

HCV production

HCVLCV


Source: TAI

Commercial vehicles

Pickups Trucks

Year Total units Vans Buses < One ton One ton One-ton double cab

PPVs Five ton Five-to ten-ton > Ten ton

2006 486,705 12,648 483 683 329,483 93,912 26,401 10,376 4,290 8,429

2007 448,484 17,794 452 2,052 285,955 96,681 23,229 10,143 4,443 7,735

2008 (Jan–Feb) 60,518 2,464 179 394 39,448 11,210 3,598 1,327 591 1,307

Domestic sales of commercial vehicles by vehicle type


Pickup trucks dominate new vehicle sales in Thailand. This strong demand is understandable in view of Thailand’s local conditions and economic point of view. A low excise tax of 3% is levied on pickup trucks, whereas the rate rises to more than 30% for cars. In addition, diesel engines are commonly used in pickup trucks, and diesel has historically been cheaper than gasoline at the pumps, partially due to government subsidies.

Additionally, the light pickup truck is seen as an all-purpose personal and commercial vehicle that is well suited to the needs of the rural population and very small-scale entrepreneurial businesses, which still account for a signi� cant proportion of the population. The light pickup truck � ts their needs as it can carry large families and agricultural produce to markets. The extra clearance and ruggedness is also helpful when road conditions are less than ideal during the rainy season.

Total units Bangkok Other provinces

Passenger cars 3,902,050 2,160,452 1,741,598

LCVs 4,322,883 936,515 3,386,368

New registrations: Passenger cars vs. LCVs (2007)


Japanese automakers have dominated this segment of the market even more than others, but in recent years, Thailand has started to see some new faces in the one-ton truck market, such as Ford, Chevrolet and Tata.


Year 2007

Toyota (34.48%)

Isuzu (36.65%)

Nissan (8.22%)

Mitsubishi (6.16%)

Chevrolet (6.14%)

Mazda (3.55%)

Ford (4.10%)

Others (.69%)

Toyota (39.64%)

Isuzu (36.02%)

Nissan (7.45%)

Mitsubishi (4.49%)

Chevrolet (4.17%)

Mazda (4.08%)

Ford (3.57%)

Others (.58%)

Year 2006

New commercial vehicle registrations by make (2006 vs. 2007)

2006 2007

No. Brand Units % Increase/decrease

2006 2007

1 Toyota 112,138 116,408 3.81

2 Isuzu 119,216 105,760 (11.29)

3 Nissan 26,749 21,871 (18.24)

4 Mitsubishi 20,030 13,179 (34.20)

5 Chevrolet 19,964 12,250 (38.64)

6 Mazda 11,555 11,972 3.61

7 Ford 13,340 10,479 (21.45)

8 Suzuki 344 1,134 229.65

9 Daihatsu — 197 100.00

10 Hino 53 142 167.92

11 Others 1,854 238 (87.16)

Total 325,243 293,630 (9.72)



Although pickup truck producers have been less than enthusiastic about shifting from diesel to alternative fuels, having local garages perform engine modi� cations to support fuel types beyond diesel has become very popular among vehicle owners in the face of increasing oil prices.

In the past two years, the number of pickup trucks using alternative fuels, such as natural gas, has increased substantially and leading automakers are now showing increased interest in expanding into this territory.

Year Total Gasoline Diesel LPG LPG and gasoline

LPG and diesel

NGV NGV and gasoline

NGV and

diesel

Electric Hybrid Others

2006 4,173,577 273,751 3,854,295 906 3,471 254 8 240 165 5 2 40,480

2007 4,371,484 257,850 4,069,382 997 8,803 383 20 625 260 6 2 33,156


LCVs by fuel type


HCV

The HCV segment remains relatively insigni� cant in Thailand, with most of the output earmarked for the domestic market.

No. Brand Units % Increase/decrease2006 2007

1 Isuzu 9,053 9,031 (0.24)

2 Trailers (local brands) 8,055 8,814 9.42

3 Hino 7,569 7,546 (0.30)

4 Mitsubishi 1,774 1,294 (27.06)

5 Nissan 995 930 (6.53)

6 Others 693 593 (14.43)

Total 28,139 28,208 0.25

New HCV registrations by make (2006 vs. 2007)


Mitsubishi (6.30%)

Nissan (3.54%) Others (2.46%)2006

Isuzu (32.17%)

Trailers (local brands)(28.63%)

Hino (26.90%)

Isuzu (32.02%)

Trailers (local brands)(31.25%)

Hino(26.75%)

2007

Mitsubishi (4.60%)

Nissan (3.30%) Others (2.10%)

Automotive market in Thailand: industry overview 22Automotive market in Thailand: industry overview


Under Thai laws, the category of passenger transport vehicles does not include buses. Instead, they are grouped with heavy trucks, with weight being the major classi� cation criterion. During the past three years, the number of buses on the road has stood around 85,000, over 60% of which are public buses.

Number of statutory annual bus checkups (2005-2007)

Year

70,000 -

60,000 -

50,000 -

40,000 -

30,000 -

20,000 -

10,000 -

0 -Public buses Charter buses Corporate busesVehicle type

Num

ber

of s

tatu

tory

bus

che

ckup

s

2005 2006 2007


In 2007, the bus segment accounted for less than 1% of the total new motor vehicle registrations in Thailand, although there has been growth as in other segments of the Thai market.

About half of the new registrations are for used buses. This is because many are public buses operating under concessions, and when a concession is lost, the buses are often sold. Many new concession operators will prefer to buy used buses rather than procuring new ones.

Bus market



New bus registrations (2005–2007)

5,000 -

4,500 -

4,000 -

3,500 -

3,000 -

2,500 -

2,000 -

1,500 -

1,000 -

500 -

0 -Public buses Charter buses Corporate busesVehicle type

2005 2006 2007


24

Year

Reg

istr

atio

ns



Motorcycle market

As in many Asian countries, a motorcycle (or “moped”) is a basic household item. Solely on a per unit basis, motorcycles account for about 70% of the market share for vehicles, and there are currently seven motorcycle assembly plants in Thailand for domestic consumption and export.

Rural dwellers are the prime clientele of motorcycles. In 2007, more than 80% of new motorcycle registrations were accounted for outside Bangkok, where agriculture is a primary mode of living. Motorcycles can offer

similar advantages to light pickup trucks but are cheaper and consume less fuel, a signi� cant factor for many in the face of high fuel prices. Therefore, as the price of agricultural produce rises, the motorcycle business in Thailand continues to grow and prosper.

The price of a locally made Japanese brand motorcycles ranges from 30,000 — 50,000 baht, and manufacturers are looking to expand their market as tax privileges for motorcycle imports are offered under JTEPA.



Motorcycle market share (2007)

No. Brands Units Market share

1 Honda 1,118,554 69.97%

2 Yamaha 370,143 23.16%

3 Suzuki 80,720 5.05%

4 Kawasaki 7,571 0.47%

5 JRD 6,064 0.38%

6 Others 15,461 0.97%

Total 1,598,513 100.00%

Source: TAI

Year

Production record Export record Sale record

Total units Moped units

Sport units

Total amount

CBU units CKD set Total units Manual transmissions

Automatic transmissions

Other units

2005 2,309,214 2,218,959 90,255 34,926.77 147,964 1,189,622 1,934,273 1,921,091 — 13,182

2006 2,075,579 2,000,617 74,962 38,310.76 107,562 1,468,104 2,054,588 2,040,261 — 14,327

2007 1,646,853 1,561,990 84,863 42,314.50 102,014 1,688,725 1,598,513 797,004 724,453 77,156

Motorcycle production, exports and sales

Source: FTIAmount: Million baht

Honda 69.97%

Yamaha 23.16%

Suzuki 5.05%

Kawasaki 0.47%

JRD 0.38%

Others 0.97%


Three-wheeler market

Despite being one of the emblems of Thailand for foreign visitors for more than 30 years, the motorized three-wheeled vehicles known as tuk-tuks were originally imported into Thailand from Japan. However, as the popularity of the tuk-tuk in Thailand as a less costly alternative to taxis rose, it became obsolete in Japan and production stopped 20–30 years ago. Since there was signi� cant demand in Thailand and in some other countries, local suppliers who had been producing spare parts decided to establish manufacturing plants to meet what was at that time a rising demand.

The popularity of the tuk-tuk, however, has shrunk dramatically over the past 15 years, and despite some success in export markets, it seems more and more to be an industry in its twilight.

27 Automotive market in Thailand: industry overview


Automotive component market

Apart from being one of the biggest one-ton pickup truck manufacturing hubs in the world, Thailand is also globally signi� cant in component manufacturing. Over the last � ve years, the country has witnessed an increase of investments in its automotive parts segment and most of the international Tier One suppliers now have bases in Thailand. Having a strong component manufacturing segment provides cost competitiveness to automakers since it is easy to source locally, and in some cases prodding by automakers has been a signi� cant driver for investments here.

Year Total (baht) CBU Engines (baht)

Spare parts (baht)

Jig and die OEM parts (baht) Others

Units Value (baht) Units Value (baht)

Body parts Component parts

2005 294,243.90 440,705 203,025.36 7,900.79 4,100.74 — 683.42 6,462.11 70,328.58 1,742.90

2006 342,655.95 538,966 240,714.25 8,447.99 5,026.38 135 571.44 6,677.28 80,489.32 729.29

2007 469,303.35 690,100 325,079.72 21,757.24 8,115.21 730 652.13 39,910.06 72,432.02 1,356.97

Vehicles and parts exports

AutoAlliance (Thailand) currently purchases approximately 60 million baht (US$1.72 billion) worth of components annually from 177 different suppliers — 90% of which are local.

Thailand’s Automotive Industry Master Plan (2007-2011) set a production target of 1.8 million units in 2011 (1.8 million pickup trucks and passenger cars) of which 800,000 units are to be exported. This would make Thailand the world’s ninth targets and Asia’s fourth biggest producer of cars, and although the timeframe is not realistic anymore given the global slump, a revised plan would probably retain the � gures.

Source: TAI

Amount: Million baht

Policy initiatives to promote the Thai automotive industry include the BOI, offering priority activity status to automotive component investments. This status confers � scal incentives, such as eight-year tax holidays, duty-free machinery imports and other bene� ts such as work permit support and land ownership rights.


Logistics in the automotive industry

Thailand is divided into three industrial estate zones with Bangkok as a center. Each industrial estate zone offers different trading and tax privileges for manufacturers located in these estates. The automotive industry is clustered around industrial estates in Bangkok and the surrounding provinces, especially Samut Prakan, Chachoengsao, Chonburi and Rayong. The industrial estates in Zones 1 and 2 are mostly designed to serve the automotive industry with easy-to-access infrastructure, such as local roads, highways, railways and nearby ports.

For domestic distribution to dealers and manufacturers nationwide, vehicles and components are transported via the road and highway network, and in limited cases, by railway. Some manufacturers have established their own component network with local suppliers and take over the delivery from the suppliers to ensure that their production is not delayed. For overseas exports, � nished goods are shipped through ports located in Bangkok, Chonburi and Rayong.

Chiang Mai

Lamphun

Kanchanaburi Angthong

Nakorn Nayok

Chachoengsao

Chonburi

Rayong

Ayuthaya

SamutSongkhram Laem

ChabangDeep Sea

PortMa Ta Phut

Deep Sea Port

Ratchaburi

4 51

23

6

SuphanBuri

Saraburi

AndmanSea

Phuket Songkhla

Pichit

Nakorn Ratchasima

30

Zone 2 (12 provinces)

Ayuthaya• Bangpa-In industrial estate• Hi-Tech industrial estate• Saha Rattana industrial estate

Chachoengsao• Gateway city industrial estate• Wellgrow industrial estate

Chonburi• Amata Nakhon industrial estate• Laem Chabang industrial estate• Pinthong industrial estate

Ratchaburi• Rachaburi industrial estate

Saraburi• Nong Khae industrial estate• Saraburi industrial estate

Zone 3 (Remaining provinces)

Rayong• Amata City industrial estate• Eastern industrial estate• Eastern Seaboard industrial estate• Map Ta Phut industrial estate• Padaeng industrial estate• Thai Singapore 21 industrial estate

Other provinces• Khon Kaen industrial estate• Northern Region industrial estate• Pichit industrial estate• Southern industrial estate

Special privilegesRayong and Laem Chabang industrial estates are entitled to Zone 3 incentives and privileges by IEAT even though they are in Investment Zone 2.

Industrial estates in Thailand

Zone 1 (6 central provinces)

Bangkok1. Samut Prakan2. Samut Sakhon3. Nakhon Pathom4. Nonthaburi5. Pathum Thani6.

Bangkok• Bangchan industrial estate• Lad Krabang industrial estate

Samut Prakan• Bangplee industrial estate• Bangpoo industrial estate• Gemopolis industrial estate

Samut Sakhon• Samut Sakhon industrial estate

Zone 1 (6 central provinces)

Zone 2 (12 provinces)

Zone 3 (Remaining provinces)

Source: Industrial Estate Authority of Thailand

Bangkok


Trade considerations for domestic and export markets

With the second highest export value of all industries and bringing in over 60 billion baht in excise tax alone, not to mention over 300,000 jobs in 2008, it is not surprising that the Thai government puts considerable effort into promoting and supporting the automotive industry.

Production, domestic sales and export forecasts

Tax incentives and non-tax incentives are offered to a wide range of manufacturers, both Thai and international. Tax-based incentives include exemption or reduction of import duties on machinery and raw materials and corporate income tax exemptions. Non-tax incentives include permission to bring in foreign experts and technicians, own land and take or remit foreign currency abroad.

Thailand is a member of the ASEAN AFTA, and the ASEAN AICO has allowed manufacturers to integrate their operations in the ASEAN region by increasing reciprocal trade; this has been particularly useful for several Japanese manufacturers who have established production operations throughout the region.

Thailand also has bilateral FTAs with Australia, New Zealand, China and India, and has pursued similar agreements with the United States and Japan, making trade conditions more favorable for these free trade counterparts.

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Sources: FTI, TAI Year

Production Domestic sales Exports

1,600,000 -

1,400,000 -

1,200,000 -

1,000,000 -

800,000 -

600,000 -

400,000 -

200,000 -

0 -


Free Zone: a major opportunity for the automotive industry

Thailand’s FZ scheme aims to make the country the preferred production base for supplying both the domestic and Asian markets (especially ASEAN), partially by removing any incentives to relocate operations to countries with which Thailand has FTAs.

Although there are other incentive programs available, administered by the BOI (exemptions and reliefs under the Investment Promotion Law), Customs Department (Manufacturing Bonded Warehouse; Free Trade Zone; Duty Drawback) and Industrial Estate Authority of Thailand (Export Processing Zone), Free Zone provides substantial customs, excise and other indirect tax savings not otherwise available.

Illustration of Free Zone arrangement

Import carparts/kit

Customs-regulated facility

• Duty on CKD kit and other parts; 20-30% is avoided on entering Free Zone

Locally sourcedcar parts/kit

Local sales inThailand

Intra-ASEANCEPT sales

Other Thai FTAarrangements

Free Zone facility(user/operator)

Manufacture/assemble vehicle-40% local content(per AFTA CEPT)• Local parts attract no duty

• Imported parts entering Free Zone can retain duty-paid or duty-free status.

• Customs duty differential 30% (on CDK) vs. 0-5% (ex-factory value less local and duty-paid parts)

• Lower customs duty has subsequent savings in Excise Tax/VAT computations

• CEPT preferential duty rate of 0-5%

• Other preferential duty rates

•

•

•

•


Duty and taxes

Import duty 80%

CEPT 5%

Excise tax • Not exceeding 2,000 cc• 2,001 — 2,500 cc • 2,501 — 3,000 cc • More than 3,000 cc

30%35%40%50%

Municipal tax 10%

VAT 7%

Duty and taxes

Import duty 40%

CEPT 0%


3% — 50%3% — 50%3% — 50%3% — 50%

Municipal tax 10%

VAT 7%

1,000 cc = 1 literSource: Ernst & Young

Background

Gasoline and diesel cars Light pickup trucks

While duty rates in Thailand are falling in accordance with WTO and other commitments, the rates remain relatively high.

Buses

Duty and taxes

Import duty 40%

CEPT 5%


30%35%40%50%

Municipal tax 10%

VAT 7%

In addition, many goods meeting the requirements of CEPT under the AFTA CEPT are subject to 0% duty on importation into Thailand.


Bene� ts of Free Zone

A Free Zone is treated as being outside the Thai customs area and offers the following key bene� ts:

• Customs duty, VAT and excise tax exemption for machinery, tools, equipment, parts, consumables and prototypes imported into the Free Zone.

• Duty drawback/exemptions on goods moved into the Free Zone from the Thai domestic market.

• 0% rate of VAT for domestic purchases of production materials moved into the Free Zone.

• Goods manufactured for export are exempted from Thai standards and quality control requirements.

• In relation to goods produced in the Free Zone and sold onto the domestic market:

• Duty rate applicable is based on the � nished goods, not the imported raw materials.

• Preferential duty rates are available provided that the � nished goods meet the rule of origin requirements under the relevant FTAs.

• The base for the computation of customs duty is the ex-factory price of the goods, less the value of local Thai material inputs.

• Additional savings may be obtained if the � nished goods are subject to excise tax.

• No time limitation on how long goods may remain within the Free Zone and retain duty/tax exemption.

• No interest is levied on the duties and taxes that were deferred when imported goods were taken into the zone.


Non-FZ baht FZ baht

CIF value of imported parts 160,000 160,000

[A] Import duty (avg. 20%) 32,000 -

[B] Ex-factory value 400,000 368,000• Less local parts: - 140,000• [C] Net ex-factory value: - 228,000

[D] Import duty (5% of [C]) - 11,400

[E] Excise tax (including municipal tax) 250,400 237,504(Published rate of 38.5% results in an (62.6% of B) (62.6% of B + D)effective rate of 62.6%)

[F] VAT (at 7%) 45,528(7% of B + E)

43,183(7% of B+D+E)

Total duties and taxes 327,928 292,087

Potential savings 35,841

Quali� cation requirements

Automotive companies are particularly well positioned to bene� t from Free Zones because they typically:

• Have signi� cant domestic sales volumes

• Have signi� cant imported material inputs with high duty rates

• May manufacture offshore and import � nished goods into Thailand at high rates of customs duty

• Wish to use Thailand as a manufacturing base to supply goods to other countries having FTAs with Thailand, under preferential import duty rates

• Can use Free Zones to ensure optimization of the overall sourcing and manufacturing strategy

Potential duty and tax savingsExample of potential customs duty, excise tax and VAT savings for one vehicle


Car buyers and car � nancing

Source: Ernst & Young

The automotive � nancing market in Thailand is largely dependent on new car sales, and pricing strategies remain the key to staying ahead in what is a highly competitive market. Estimates of the overall auto � nancing market are around US$1 billion, and growth to as much as US$1.3 billion was expected for 2008. However, lower demand in the local car market is likely to slow market growth for the near future.

Most cars sold in Thailand are sold on credit, as typical buyers are medium-income earners who need loans for their purchases. Normally, automotive � nancing comprises hire purchase and leasing, with almost 80% of consumers choosing hire purchase because there is no need to pay a lump sum upfront and it is relatively less complicated than leasing.

Adjusted hire purchase rates (as of June 2008)

Banks/leasing companies

Rate increase (%)

Adjusted rates for new cars (%)

Adjusted rates for used cars (%)

Thanachart Leasing 0.25 3.0 3.75–4.15

Kasikorn Leasing 0.20–0.25 2.95–3.0 3.5–4.0

Kiatnakin 0.20 2.9 4.0

KTB Leasing 0.20 3.0 —

Tisco 0.20 3.0 4.0

Source: Ministry of Commerce

Banks/leasingcompanies

Market Share

Thanachart Company Limited 25%

Toyota Leasing 16%

SCB Leasing 13%

Tisco Bank Public Company Limited 10%

Kiatnakin Bank Public Company Limited 5%

Others 31%

Market share of hire purchase market for new cars

Others, 31%

Kiatnakin Bank Public Company Limited, 5%

Tisco Bank Public Company Limited, 10 % SCB Leasing, 13%

Toyota Leasing, 16%

Thanachart Company Limited, 25%

Automotive � nancing is provided by banks, bank-backed � nancial service � rms, captive � nance companies and independent leasing companies. Competition is strong, with common marketing strategies including extended installment terms (as long as 84 months in cases), lower down payments and offering lower-than-market interest rates.


Development of dealer networks

Growth in the domestic automotive market relies on having an established dealer network to reach consumers nationwide. To drive sales and achieve desired brand experience, most automakers provide � nancial or technical assistance to their dealerships to support marketing activities, showroom improvements or service center training. While some dealerships are effectively exclusive, others, (grey market dealerships or new brands, for instance), may use a multibrand strategy to capture a particular clientele or expand their customer base. However, there seems to be no limitation on becoming a dealership of a competing automaker as long as the dealership has the capacity to do so. There are a few branded chains of dealerships but their networks are usually con� ned to a speci� c geographical area, rather than being countrywide.

Although dealerships are vital to automakers, it is usually the dealers who approach the makers. Manufacturers of popular brands can afford to be very thorough in their dealer selection process. New dealers will only be accepted if they have capital and experience.

To apply for dealerships with Toyota, for example, applicants must meet certain criteria, including having available capital, an appropriate site location and high-quality service offerings, and present a business case to Toyota on how they plan to run the business. In most cases, applicants with solid � nancial backing, an attractive location, automotive business experience and a good reputation will be successful. Currently, Toyota has more than 100 dealers operating almost 300 showrooms around the country. Toyota also allows its dealers to act as middle men for used Toyota vehicles.

Newcomers, such as Chevrolet, Proton and some European brands, have to work slightly differently from their Japanese counterparts because it is harder for them to attract credible dealers. For example, some makes are sold through a chain of dealerships established by an importer of a range of European cars.

Availability of parts and reliable service are also signi� cant factors in the dominance of the big players. Since licensed dealers and service centers are rare outside the larger towns and cities, buyers assume repairs and parts will often be sourced from local automotive shops — which may only be able to service the more popular and long-established brands.


Ernst & Young’s involvement in the automotive industry

Our clients

Globally, Ernst & Young provides assurance and advisory services to many of the world’s leading automotive businesses:

• Ernst & Young is the number one auditor of automotive companies on the 2008 Fortune 1000 in terms of companies audited (6 out of 15 companies [35.4%]).

• Ernst & Young is the leading auditor of automotive companies on the 2007 Russell 3000 in terms of companies audited (5 out of 10 companies [31.5%]) in the automotive sector for 2007.

• Ernst & Young is the number one auditor of automotive companies in the Ames Research Group’s Leading Companies Database, auditing 39 out of 223 companies (17.5%).

Where to invest?

• Location advisory

• Feasibility studies

• Regional comparison (legal, tax, labor and utility cost)

• Scenario analysis

• Financial modeling

Who should we partner with?

• Background check

• Due diligence (tax, � nancial, IT, HR)

• Transaction structuring (tax)

• IFRS/US GAAP audit

How to best take advantage of incentives?

• Enhanced tax function performance planning for selecting the legal form of business

• Tax-ef� cient planning for shareholder contributions, customs valuation, � nancing and transfer pricing

• Application of local tax concessions

• Equipment import, components import and customs incentives planning

How to start a business?

• Assistance in obtaining authorities’ approvals

• Post-merger integration

Global Automotive Center contacts

Thailand automotive contacts

Narong PuntawongAutomotive Industry Leader, [email protected]

Phil BellDirectorCustoms and International [email protected]

Paul TaylorAssociate DirectorCenter for Business [email protected]

39

Mike HanleyGlobal Automotive Industry [email protected]

Peter FußAutomotive Industry Leader, Europe, Middle East, India and Africa (EMEIA)[email protected]

James WuAutomotive Industry Leader, Far [email protected]

Mitsumasa UenoAutomotive Industry Leader, [email protected]


Ernst & Young

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About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 135,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

For more information, please visit www.ey.com.

Ernst & Young refers to the global organization of member � rms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

© 2009 EYGM Limited. All Rights Reserved.

EYG no. ED0026

About Ernst & Young’s Global Automotive CenterErnst & Young’s Global Automotive Center in Detroit, Stuttgart, Shanghai and Tokyo is focused on the mega trends in the global automotive industry. It brings together a team of professionals to help you achieve your potential – a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help you meet your goals and compete more effectively. It’s how Ernst & Young makes a difference.

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

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