AUTOMOTIVE HUB POTENTIAL
1. The automotive industry supports a wide range of other industries and business segments throughout the value chain – from producers of steel, rubber, electronics and software to insurance, financing, parts business and advertising.
2. For each job within the automotive industry, several jobs are created in supporting segments like the metals industry, parts suppliers, and dealerships.
ASEAN CURRENT MARKET TRENDS
1. Thailand - As SEA’s leading manufacturing and assembly hub, Thailand has the most comprehensive auto parts supplier base, attracting more and more automakers to set up R&D plants there. From being a large consumer market, the country has evolved into an export hub serving both the immediate region and beyond, including the Middle East, China, India, Europe and America.
2. Indonesia - With the largest economy in ASEAN, Indonesia expects passenger vehicle growth at a CAGR of 7.4% to 2020. The commercial vehicle sector should also enjoy solid growth. The 76.2 million motor cycles and 8.3 million passenger vehicles in Indonesia are widely spread across the nation, with the top 4 cities accounting for only 11% of the motorcycle population and 26% of the passenger car population.
3. Indonesia continues to challenge Thailand’s position as a production and export hub following significant expansion plans by multiple major car manufacturers. Supporting this shift is Indonesia’s domestic automotive demand, which totalled 1.21m units, overtaking Thailand’s domestic market of 881,832 units in 2014.
4. Philippines - The Philippines stand out as the market that has enjoyed the best growth in recent times – a CAGR of 28% from 2011-2014.
5. Vietnam - The level of ownership of motorbikes is approx. 42% of the country’s population.
6. Malaysia - The domestic market is unique in that Proton and Perodua - the two Malaysian automotive brands - enjoy a high market share (46.8% in 2014).
INDONESIA THE POTENTIAL AUTOMATIVE HUB OF SOUTHEAST ASIA
1. Government policy in Indonesia encourages local production. Whilst this could have some undesirable wider effects, there is no doubt it can act as a ‘pull’ factor in specific cases producer of automobiles in the region with an annual production volume of around 2 million units as compared to Indonesia’s 1.1 million units in 2015.
2. Despite being the second largest automotive producer, Indonesia has not been as successful as Thailand at building its export markets, exporting only 23 per cent of its domestic production in 2015 compared to Thailand’s 55 per cent. This improvement could be achieved by a combination of:
(i) Increased plant utilisation. In 2015, Indonesia had an installed production capacity of close to 2 million vehicles, but was only utilising around 62 per cent of this capacity
(ii) Further investment of up to US$2.6bn in the creation of new or expanded plant capacity, if utilisation rate remains the same.
EUROPEAN SUPPLIERS
1.European suppliers are also looking at ASEAN as a global production hub – exporting parts and components from ASEAN to Europe’s major automotive factories. Putting in place further FTAs, such as an EU-ASEAN FTA, would undoubtedly increase the potential for suppliers to export more from ASEAN to other global locations. However, moves also need to be made within ASEAN to remove differences in standards and testing regimes between intra-ASEAN markets to as to facilitate greater expansion of the supplier market in the region.
2.Key challenges for the European automotive sector which have prevented them from gaining a larger foothold in markets in South East Asia include:
(i) High import duties and excise taxes;
(ii) Numerous non-tariff barriers to trade;
(iii) Limited economies of scale in local production and purchasing; and,
(iv) Government incentive schemes that have been mainly geared towards entry-level segments.
GROWTH STRATEGIES FOR MANUFACTURERS
1. Invest in Dealer Network
(i). Nissan in Indonesia has been expanding their sales network and setting up dealerships despite the overall slowing economy. The automaker plans to do the same in the Philippines following its joint venture with Universal Motors to form Nissan Philippines Inc. Especially in the Philippines, where the automotive sector has remained upbeat, automakers are aggressively expanding into the provincial areas to reach out to more customers.
(ii). A point of contention between manufacturers and dealers often revolves around setting sales targets. Given the slim margins that dealers make on new car sales, their focus naturally turns to after-sales servicing and auto part sales. In order to drive sales, some automakers are offering incentives to motivate sales staff directly, in the form of cash or travel. Automakers also utilise incentive schemes to cope with high staff turnover, but arguably more needs to be done by the manufacturers to support dealers in building employee loyalty as a long-term solution.
2. Leverage local expertise
(i) Leveraging the expertise of existing players in growth markets can be extremely helpful in mitigating the challenges and risks of entering and expanding in a new growth market, and it does not always have to be with a domestic player.
(ii) However, not all partnerships in the automotive sector are profitable. A key to success is to gain a good understanding of the expectations of the potential partner. Growth market companies may have higher expectations of partnerships than before. Previously, it used to be sufficient for the foreign company to offer access to technology and sophisticated management solutions while the role of domestic partners was to make key government connections and cater for low cost production. Now, the local firm may want to invest capital, contribute to the development of technology capabilities, or engage in a global partnership which will provide international exposure
GROWTH STRATEGIES FOR ASEAN
1. Align International Technical Standards
(i) The harmonisation of automotive product standards is an essential basis for a single manufacturing base as envisioned under the AEC. Without this harmonisation, or at the very least the mutual recognition and acceptance of others standards, it will be impossible for the automotive industry to consider ASEAN as a single manufacturing base.
(ii) As work is underway within ASEAN to align technical requirements, 19 international UNECE regulations have been prioritised by ASEAN in a first step that will form part of the Mutual Recognition Arrangement (MRA) for automotive products in ASEAN. This proposed alignment with international standards will ensure increased global automotive competitiveness and will enable the export of cars and automotive technologies to other countries who also follow the global UNECE standards. This should open up new international markets for the vehicles produced within ASEAN.
2. Harmonisation of local homologation processes and definitions on local content requirements
(i)Depending on local requirements, local agencies require manufacturers to comply with local mandatory certification procedures on top of international standards. Test reports and or plant audits accepted by one agency are not accepted by other agencies from other countries requiring duplication of effort and additional costs.
(ii) lst ATIGA stipulates identical local content requirements (40%) for duty free export within ASEAN, both local content and rules of origins are defined differently across the ASEAN Member States. In addition, different certification processes by different local authorities when applying for rules of origin result in increased complexity for exports
3. CO2 based vehicle taxation systems
(i) European cars are at a disadvantage as current taxation regimes in ASEAN are mostly based on the vehicle price. As a result, cars with state of the art technologies, which tend to be higher in terms of production costs and therefore vehicle price, are being penalised as they receive the highest overall tax burden.
(ii) With a clear focus on the emissions output or fuel consumption of the vehicle as an alternative basis for vehicle taxation, the best (cleanest and safest) vehicle technology will be incentivised and will be more affordable to the end consumer. This will enhance competiveness and productivity among all market players and give the consumer a wider range of environmentally friendly options. Vehicle Taxation Rates in Selected ASEAN Countries in 2015.
4. Availability and quality of skilled workforce
(i) Despite of the growing number of qualified engineers and graduates from vocational schools, ASEAN continues to experience labour shortages, as these graduates do not meet increased industrial standard requirements.
(ii) Moves to further liberalise the job market within the region should be accelerated, placing increased emphasis on the free movement of skilled labour within ASEAN.
(Source: supplychainasia, PWC, EU-ASEAN BUSINESS COUNCIL)
