Analysis – Thailand’s auto sector feels as orders fall, household debt rises by Reuters

By Chayut Setboonsarng and Thanadech Staporncharnchai

BANGKOK (Reuters) – Thailand’s $53 billion auto industry faces a bleak future as heavily indebted domestic consumers struggle to finance purchases and overseas buyers of its traditional core vehicles increasingly what more to electric alternatives.

The crisis in Southeast Asia’s biggest auto manufacturing hub has forced production and job cuts and triggered government moves to try to reverse its fortunes.

It is already spreading through companies such as Techno-Metal, which produces cast iron undercarriage parts for Japanese automakers including Toyota Motor (NYSE: ) and Mitsubishi Motors (OTC: ) for more than three decades.

Production at the company’s two factories in Thailand’s Chon Buri province is currently at just 40 percent of full capacity, and the workforce has steadily declined as orders have eroded, said deputy managing director Nattaporn Chewapornpimon. “At the end of last year, there were about 1,200 workers. Now, there are 900 left,” she said. “We also reduced working hours to 75% and reduced overtime.”

Production in Thailand’s auto industry has been on a downward trend for the past year, falling 20.6 percent in August on an annual basis. And domestic sales fell to a 14-year low on a 12-month moving average, industry data showed.

The auto industry estimates that Thailand will produce 1.7 million vehicles this year, down from 1.9 million in 2023. Of these, 550,000 vehicles are expected to be sold domestically and 1.15 million for export .

“It’s a crisis, quite serious, with no easy way out,” said Hajime Yamamoto, director at the consulting division of Thailand’s Nomura Research Institute, adding that the stagnant domestic market combined with increased export competition is squeezing the auto sector. .

The fast-growing electric vehicle (EV) sector, which has attracted more than $1.44 billion in investment from Chinese electric vehicle makers such as BYD ( SZ: ), is unable to recover from weakening production for the local automotive industry. auto parts, which has approximately 2,000 electric vehicles. companies and employs approximately 700,000 workers. “The Thai cost structure is 30 percent higher than China’s,” said Sompol Tanadumrongsak, president of the Thailand Auto Parts Manufacturers Association.

“Thai businesses can’t really do that.”

TIRE PROBLEMS

At the heart of the problems for Thailand’s auto sector is the pickup truck segment, which accounted for nearly half of Thailand’s total vehicle sales last year and is a fixture on its roads, from Bangkok’s busy streets to country lanes.

In 2023, more than 820,000 pick-ups were exported, or 67% of the total produced, according to official data.

So far this year, pickup truck exports have fallen 8.76 percent year-on-year, with production falling 20.51 percent year-on-year to 616,549 units, the data showed.

This has hurt Thai firms, as more than 90 percent of pick-up parts are made locally, and the segment alone accounts for 70 percent of the domestic parts market, according to the auto parts association.

Sales of auto parts fell nearly 12 percent this year to 519 billion baht ($15.68 billion), Kasikornbank’s research unit said in a September report.

“If auto parts SMEs close today, they don’t come back,” said the auto parts association’s Sompol, adding that the situation is worse than it was during the Asian financial crisis of the late 1990s and the pandemic since the beginning of this decade. “If it is left like this – we will all die.”

The main culprit is household debt of $484 billion, or 90.8 percent of Thailand’s gross domestic product as of March 2024, among the highest in Asia, which has put a damper on car sales.

In the first six months of 2024, financial institutions approved about 203,000 pickup loans, compared with 722,000 for all of 2019, credit bureau data shows.

The credit situation is so tight across several consumer segments that Thailand’s main association of electric vehicle manufacturers has cut its sales forecast for 2024 in half.

Existing car owners are also struggling to repay their loans.

“Purchase NPLs started to appear in the first quarter of 2022,” said Surapol Opastien, head of the National Credit Bureau, referring to non-performing loans that have since risen 40 percent year-on-year to 148 billion baht ($4.46 billion). ).

PLANNED STYLES

Industry groups are now scrambling to find solutions, with the auto parts sector pushing the government for more incentives for foreign makers of traditional internal combustion engines (ICE) and hybrid cars.

“We want to be the last man in ICE, especially in pickup trucks and hybrid production … we’re attracting automakers to move that production here,” said the parts group’s Sompol.

The government plans to provide investment incentives and subsidies for hybrid production.

“The Japanese have also adapted to hybrid technology to compete and still need parts,” said Surapong Paisitpattanapong of the Federation of Thai Industry’s automotive division.

The Board of Investments of Thailand is also trying to attract foreign investors to form partnerships with local auto parts companies.

“This will change Chinese electric vehicles into Thai electric vehicles, which can then be exported,” said electric vehicle association chief Suroj Sangsnit, pointing to tariffs on Chinese-made cars from the United States, the EU and India.

“There is nothing other than this that can improve the situation.”

But for some Thai firms, working with Chinese electric vehicle manufacturers has been a challenge, including because of price differences.

“Even if we can (supply Chinese electric vehicles), the profits are low,” Techno-Metal’s Nattaporn said.

“We still need to focus on OEM (original equipment manufacturing) for Japanese brands. If they have electric vehicle plans, that would be a blessing for us.”

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